New Evidence on Implicit Contracts from Linked Employer/Employee Data

20 Pages Posted: 19 Dec 2010

See all articles by Juha Kilponen

Juha Kilponen

Bank of Finland - Research

Torsten Santavirta

Aalto University

Date Written: November 15, 2010

Abstract

We improve the precision of the implicit contract model test proposed by Beaudry and DiNardo (1991). Our dataset allows us to define the exact industry and plant of a particular employment relationship, link local labor market characteristics to individual level wages, and control for composition effects. We find evidence in favor of the spot market model of wage setting in the whole sample, but there is significant variation across industries and education levels. In particular, the spot market matters most for low skill workers, while the implicit contract model with one-sided limited commitment applies better to high-skill workers.

Keywords: Wage setting, limited commitment, business cycle, wage cyclicality, E32, J41, J64

Suggested Citation

Kilponen, Juha and Santavirta, Torsten, New Evidence on Implicit Contracts from Linked Employer/Employee Data (November 15, 2010). Scandinavian Journal of Economics, Vol. 112, Issue 4, pp. 864-883, 2010. Available at SSRN: https://ssrn.com/abstract=1727888 or http://dx.doi.org/10.1111/j.1467-9442.2010.01623.x

Juha Kilponen

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland
+358 10 831 2847 (Phone)
+358 10 831 2294 (Fax)

HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/kilponen_juha/

Torsten Santavirta

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

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