Regulation or Markets? The Case of Employment Contract

46 Pages Posted: 8 Mar 2005

See all articles by W. Bentley MacLeod

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: January 2005

Abstract

Regulation of the employment contract is both wide spread and diverse. The diversity of regulation is surprising because it suggests that there is little consensus regarding optimal intervention into the labor market. This paper discusses several economic reasons why it may be efficient for employers and employees to enter into long term contracts that make employee dismissal expensive. This analysis suggests that employment contracts can be expected to be complex in practice, and hence can be viewed as part of the technology of exchange. Given that knowledge of a technology requires skill and know-how, one cannot expect all employee-employer matches to discover and use the most efficient contract terms possible. It is suggested that the regulation of the employment relationship might be improved with the creation of a market for contracts, similar to the one that currently exists in the United States for construction projects.

JEL Classification: J300, J410, K310

Suggested Citation

MacLeod, William Bentley, Regulation or Markets? The Case of Employment Contract (January 2005). IEPR Working Paper No. 05.17. Available at SSRN: https://ssrn.com/abstract=678184 or http://dx.doi.org/10.2139/ssrn.678184

William Bentley MacLeod (Contact Author)

Columbia University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics ( email )

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