Extension of labor contracts and optimal backpay

Research output: Contribution to journalArticlepeer-review


This paper explains why a union and a firm might settle on a contract duration that may later be extended and characterizes the optimal backpay for the holdout period. It is shown that the choice between concluding a shorter contract that may be extended and immediately concluding a longer contract depends on the prevalence of the different types of uncertainty in the economy. It is also shown that the optimal backpay reduces the negative impact of nominal uncertainty on a worker's real income, but increases the worker's exposure to idiosyncratic uncertainty.

Original languageEnglish
Pages (from-to)18-36
Number of pages19
JournalLabour Economics
Issue number1
StatePublished - 1 Feb 2008


  • Backpay
  • Contract duration
  • Contract extension
  • Holdout
  • Indexation

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management


Dive into the research topics of 'Extension of labor contracts and optimal backpay'. Together they form a unique fingerprint.

Cite this