Discrete shocks and fixed duration of labor contracts

Leif Danziger

doi:10.1016/0927-5371(95)80041-U

Discrete shocks and fixed duration of labor contracts

Research output: Contribution to journal › Article › peer-review

Abstract

This paper examines the choice between fixed and stochastic durations of labor contracts in an economy with discrete shocks. The stochastic duration expires when the consumer price index reaches a lower or upper limit. The paper proves that any contract with a stochastic duration is dominated by a contract with a fixed duration, except for the contract that expires at the first shock. This is because shocks have a cumulative effect and a fixed duration limits the time a contract can remain in force after a large number of shocks, while there is no time limit with a stochastic duration.

Original language	English
Pages (from-to)	359-379
Number of pages	21
Journal	Labour Economics
Volume	2
Issue number	4
DOIs	https://doi.org/10.1016/0927-5371(95)80041-U
State	Published - 1 Jan 1995
Externally published	Yes

Keywords

Discrete shocks
Fixed duration
Labor contracts

ASJC Scopus subject areas

Economics and Econometrics
Organizational Behavior and Human Resource Management

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10.1016/0927-5371(95)80041-U

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abstract = "This paper examines the choice between fixed and stochastic durations of labor contracts in an economy with discrete shocks. The stochastic duration expires when the consumer price index reaches a lower or upper limit. The paper proves that any contract with a stochastic duration is dominated by a contract with a fixed duration, except for the contract that expires at the first shock. This is because shocks have a cumulative effect and a fixed duration limits the time a contract can remain in force after a large number of shocks, while there is no time limit with a stochastic duration.",

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N2 - This paper examines the choice between fixed and stochastic durations of labor contracts in an economy with discrete shocks. The stochastic duration expires when the consumer price index reaches a lower or upper limit. The paper proves that any contract with a stochastic duration is dominated by a contract with a fixed duration, except for the contract that expires at the first shock. This is because shocks have a cumulative effect and a fixed duration limits the time a contract can remain in force after a large number of shocks, while there is no time limit with a stochastic duration.

AB - This paper examines the choice between fixed and stochastic durations of labor contracts in an economy with discrete shocks. The stochastic duration expires when the consumer price index reaches a lower or upper limit. The paper proves that any contract with a stochastic duration is dominated by a contract with a fixed duration, except for the contract that expires at the first shock. This is because shocks have a cumulative effect and a fixed duration limits the time a contract can remain in force after a large number of shocks, while there is no time limit with a stochastic duration.

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Discrete shocks and fixed duration of labor contracts

Abstract

Keywords

ASJC Scopus subject areas

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