Limited Commitment Models of the Labor Market

37 Pages Posted: 4 Oct 2007

See all articles by Jonathan Thomas

Jonathan Thomas

University of Edinburgh - Economics; CESifo (Center for Economic Studies and Ifo Institute)

Tim S. Worrall

University of Edinburgh

Date Written: October 2007

Abstract

We present an overview of models of long-term self-enforcing labor contracts in which risk sharing is the dominant motive for contractual solutions. A base model is developed which is sufficiently general to encompass the two-agent problem central to most of the literature, including variable hours. We consider two-sided limited commitment and look at its implications for aggregate labor market variables. We consider the implications for empirical testing and the available empirical evidence. We also consider the one-sided limited commitment problem for which there exists a considerable amount of empirical support.

Keywords: labor contracts, self-enforcing contracts, unemployment, business cycle

JEL Classification: E32, J41

Suggested Citation

Thomas, Jonathan P. and Worrall, Tim S., Limited Commitment Models of the Labor Market (October 2007). CESifo Working Paper Series No. 2109, Available at SSRN: https://ssrn.com/abstract=1019236

Jonathan P. Thomas (Contact Author)

University of Edinburgh - Economics ( email )

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HOME PAGE: http://www.st-andrews.ac.uk/~jpt/

CESifo (Center for Economic Studies and Ifo Institute)

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HOME PAGE: http://www.cesifo.de

Tim S. Worrall

University of Edinburgh ( email )

30 Buccleuch Place
Edinburgh, Scotland EH8 9JY
United Kingdom
(0)131 651 5128 (Phone)

HOME PAGE: http://www.timworrall.com

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