Testing for Contracting Effects on Employment

39 Pages Posted: 14 Apr 2007

See all articles by Mark Bils

Mark Bils

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

Date Written: July 1989


I test the importance of wage rigidities from long-term contracts by observing how employment behaves when firms and workers recontract. If rigidities are important then we should observe employment adjusting after recontracting to undo movements in employment during the past contract that were excessive due to rigid wages. The data are for twelve manufacturing industries that display a strong bargaining pattern. I find that contract rigidities are important, causing considerably larger fluctuations in employment than would occur with flexible wages. By far the most striking case is in motor vehicles where long-term contracts much more than double the size of fluctuations in employment. I also examine the behavior of wage rates when new contracts are introduced. Wage growth does respond to employment growth during the prior contract in several of the industries; but these responses are not related to the pattern of employment responses across industries.

Suggested Citation

Bils, Mark, Testing for Contracting Effects on Employment (July 1989). NBER Working Paper No. w3051, Available at SSRN: https://ssrn.com/abstract=979950

Mark Bils (Contact Author)

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627-0158
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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