Implicit Contracts, Labor Mobility and Unemployment

55 Pages Posted: 26 May 2004

See all articles by Richard J. Arnott

Richard J. Arnott

Boston College; National Bureau of Economic Research (NBER)

Arthur J. Hosios

University of Toronto - Department of Economics; National Bureau of Economic Research (NBER)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: July 1987

Abstract

Firms' inability to monitor their employees' search effort forces a tradeoff between risk-bearing and incentive considerations when designing employment-related insurance. Since the provision of insurance against firm-specific shocks adversely affects workers' incentives to find better jobs, the optimal contract provides only partial insurance: it prescribes low (high) wages and under (over) employment to encourage workers to leave (stay) at low (high) productivity firms; and it employs quits and layoffs as alternative means of inducing separations at low productivity firms, with the mix depending upon the relative efficiency of the on- and off-the-job search technologies. Our analysis of implicit contracts with asymmetric search information establishes that any consistent explanation for worksharing, layoffs, severance pay, quits and unemployment must focus on questions of labor mobility.

Suggested Citation

Arnott, Richard J. and Hosios, Arthur J. and Stiglitz, Joseph E., Implicit Contracts, Labor Mobility and Unemployment (July 1987). NBER Working Paper No. w2316. Available at SSRN: https://ssrn.com/abstract=227281

Richard J. Arnott (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3674 (Phone)
617-552-1887 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Arthur J. Hosios

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-8997 (Phone)
416-978-6713 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
35
Abstract Views
850
PlumX Metrics