Implicit contracts, seniority rights, and layoffs under symmetric information

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Abstract

This paper analyzes an implicit contract model in which it is assumed, realistically, that workers are laid off in inverse order of seniority. In contrast to the standard model with random layoffs, involuntary unemployment and underemployment may coexist, even under symmetric information. It is shown how the wage, the profit, and the employment vary with the price of the firm's output. An increase in the output price may, in analogy with the perverse output response of a labor-managed firm, lead to lower employment.

Original languageEnglish
Pages (from-to)372-383
Number of pages12
JournalJournal of Comparative Economics
Volume14
Issue number3
DOIs
StatePublished - 1 Jan 1990
Externally publishedYes

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