The Effect of Implicit Contracts on the Movement of Wages Over the Business Cycle: Evidence from the National Longitudinal Surveys

Posted: 6 May 2008

See all articles by Darren P. Grant

Darren P. Grant

Sam Houston State University - College of Business Administration - Department of Economics and International Business

Abstract

A 1991 study by Paul Beaudry and John DiNardo found evidence of internal labor markets that simultaneously augment incumbent workers' wages when the external labor market is tight (when unemployment is low) and shield their wages when it is slack. Current wages, they found, depend on the tightest labor market conditions observed since a worker was hired, not current labor market tightness or labor market tightness at the time of hiring. This paper replicates and extends that research using data from six cohorts of the National Longitudinal Surveys that together span more than three decades, as well as an estimation framework more robust than that in the original study. The author finds strong support for Beaudry and DiNardo's key prediction. Supplementary regressions confirm other implications of the theory, as well. Recently, at least, the effect of implicit contracting on wages has been similar for men and women.

Keywords: Implicit Contracts, Business Cycle, Wage Determination

JEL Classification: J41, E32

Suggested Citation

Grant, Darren P., The Effect of Implicit Contracts on the Movement of Wages Over the Business Cycle: Evidence from the National Longitudinal Surveys. Industrial and Labor Relations Review, Vol. 56, No. 3, April 2003. Available at SSRN: https://ssrn.com/abstract=390220

Darren P. Grant (Contact Author)

Sam Houston State University - College of Business Administration - Department of Economics and International Business ( email )

SHSU Box 2118
Huntsville, TX 77341-2118
United States
936-294-4324 (Phone)

HOME PAGE: http://www.shsu.edu/dpg006

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