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Job security and long-term investment: An experimental analysis

Gary Charness (), Ramon Cobo-Reyes, Natalia Jiménez (), J. Antonio Lacomba () and Francisco Lagos ()
Additional contact information
J. Antonio Lacomba: Departamento de Teoria e Historia Economica, University of Granada & Globe

No 16.13, Working Papers from Universidad Pablo de Olavide, Department of Economics

Abstract: This article considers three different types of experimental labor contracts. A novel aspect of our experimental design is that workers have the chance of investing money in a long-term project in order to increase their income. We find a strong relationship between what happens inside the labor market (worker’s performance) and what happens outside the labor market (long-term investment). Long-term labor relationships seem to provide a safer environment for undertaking successful long-term projects. In the other direction, investing in long-term projects leads workers to improve their performance inside the labor market. We also introduce a new type of performance-based dismissal-barrier contract, whereby firms are required to retain workers if they have satisfied the effort level required by the firms. We find that performance-based dismissal barriers in the labor market leads to more long-term employment relationships and higher overall productivity.

Keywords: Incomplete contracts; long-term relationships; renewable dismissal barriers; workers’ stability; investment and experiments. (search for similar items in EconPapers)
JEL-codes: J41 J3 C91 D01 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2016
New Economics Papers: this item is included in nep-exp, nep-hrm, nep-law and nep-ppm
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Journal Article: Job security and long-term investment: An experimental analysis (2017) Downloads
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