The Spot Market Matters: Evidence on Implicit Contracts from Britain

34 Pages Posted: 26 Feb 2005

See all articles by Paul J. Devereux

Paul J. Devereux

University College Dublin - Department of Economics; IZA Institute of Labor Economics

Robert A. Hart

University of Stirling - Department of Economics; Institute for the Study of Labor (IZA)

Date Written: February 2005

Abstract

Based on the methodology of Beaudry and DiNardo (1991), this paper investigates the relative importance of the spot market and implicit contracts in the determination of British real wages. Empirical work is carried out separately for males and females with individual-level data taken from the New Earnings Survey Panel for the years 1976 to 2001. In contrast to previous studies that used North American data, the spot market is found to be more important than implicit contracts in determining real wages. Indeed, there is very little support for implicit contracts in these data. Further evidence is provided through the analysis of individual wage sequences. These suggest that the downwardly rigid wage sequences implied by implicit contracts with costless worker mobility are not prevalent in Britain.

Keywords: spot market wages, implicit contracts, unemployment, wage sequences

JEL Classification: E24, E32, J31

Suggested Citation

Devereux, Paul J. and Hart, Robert A., The Spot Market Matters: Evidence on Implicit Contracts from Britain (February 2005). Available at SSRN: https://ssrn.com/abstract=673426 or http://dx.doi.org/10.2139/ssrn.673426

Paul J. Devereux

University College Dublin - Department of Economics ( email )

Belfield
Dublin 4, 4
Ireland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Robert A. Hart (Contact Author)

University of Stirling - Department of Economics ( email )

Stirling, Scotland FK9 4LA
United Kingdom
+44 1786 467 471 (Phone)
+44 1786 467 469 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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