The Dynamics of Working Hours and Wages Under Implicit Contracts

Marco Guerrazzi and Pier Giuseppe Giribone

No 818, GLO Discussion Paper Series from Global Labor Organization (GLO)

Abstract: In this paper, we explore the dynamics of working hours and wages in a model economy where a firm and its workforce are linked to each other by an implicit contract. Specifically, we develop a deterministic and a stochastic framework in which the firm sets its level of labour utilization by considering that workers' earnings tend to adjust in the direction of a fixed level. Without any uncertainty in firm's profitability, we show that the existence and the properties of stationary solutions rely on factors that usually determine the enforceability of contracts and we provide evidence that wages tend to move countercyclically towards the allocation preferred by the firm. Moreover, we show that adding uncertainty does not overturn the counter-cyclical pattern of wages but is helpful in explaining their dynamic behaviour in response to demand shocks as well as their typical stickiness observed at the macro level.

Keywords: Implicit contract theory; Consumption smoothing; Out-of-equilibrium dynamics; Stochastic optimal control (search for similar items in EconPapers)
JEL-codes: D86 E24 J41 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-lma, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/233008/1/GLO-DP-0818.pdf (application/pdf)

Related works:
Journal Article: The dynamics of working hours and wages under implicit contracts (2022)
Working Paper: The dynamics of working hours and wages under implicit contracts (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:818

Access Statistics for this paper

More papers in GLO Discussion Paper Series from Global Labor Organization (GLO) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().