Labour Contracts, Equal Treatment and Wage-Unemployment Dynamics

36 Pages Posted: 14 Nov 2006

See all articles by Jonathan Thomas

Jonathan Thomas

University of Edinburgh - Economics; CESifo (Center for Economic Studies and Ifo Institute)

Andy Snell

University of Edinburgh - Economics

Date Written: October 2006

Abstract

This paper analyses a model in which firms cannot pay discriminate based on year of entry to a firm, and develops an equilibrium model of wage dynamics and unemployment. The model is developed under the assumption of worker mobility, so that workers can costlessly quit jobs at any time. Firms on the other hand are committed to contracts. Thus the model is related to Beaudry and DiNardo (1991). We solve for the dynamics of wages and unemployment, and show that real wages do not necessarily clear the labour market. Using sectoral productivity data from the post-war US economy, we assess the ability of the model to match actual unemployment and wage series. We also show that equal treatment follows in our model from the assumption of at-will employment contracting.

Keywords: labour contracts, business cycle, unemployment, equal treatment, cohort effects

JEL Classification: E32, J41

Suggested Citation

Thomas, Jonathan P. and Snell, Andy, Labour Contracts, Equal Treatment and Wage-Unemployment Dynamics (October 2006). CESifo Working Paper Series No. 1835, Available at SSRN: https://ssrn.com/abstract=944428 or http://dx.doi.org/10.2139/ssrn.944428

Jonathan P. Thomas (Contact Author)

University of Edinburgh - Economics ( email )

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Edinburgh, EH8 9JY, Scotland
United Kingdom
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HOME PAGE: http://www.st-andrews.ac.uk/~jpt/

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Andy Snell

University of Edinburgh - Economics ( email )

50 George Square
Edinburgh, EH8 9JY
United Kingdom

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