NOMINAL WAGE CONTRACTS AND THE MONETARY TRANSMISSION MECHANISM

We introduce staggered and synchronized nominal wage contracts into a one‐sector monetary dynamic general equilibrium model to analyze the importance of the monetary transmission mechanism. We find a stronger monetary propagation mechanism under a synchronized setting as compared to a staggered setting. This causes the economy under staggering to be less volatile, better matching the data, as well as bringing about lower welfare costs (measured in terms of consumption). However, our results are mixed when it comses to evaluating the contemporaneous correlations and cross‐correlations. We conclude that overall staggered contracts do better in matching the U.S. economy. (JEL E32, E51, J41)     

WAGES,EMPLOYMENT, AND STATISTICAL DISCRIMINATION: EVIDENCE FROM THE LABORATORY

We report results from laboratory experiments designed to examine statistical discrimination. Our design expands upon existing research by generating data both on wage contracts and unemployment rates of directly competing worker groups. We find some evidence for statistical wage discrimination against workers having an identical expected productivity but a higher productivity variance. However, those same subjects are less likely to be unemployed, suggesting that our employer‐subjects view hiring choice and wage contracts as substitutable. A clear implication is that field data discrimination estimates based on wages alone may overestimate the true impact of such discrimination. (JEL C90, J71)     

THE CONSEQUENCES OF (DE)REGULATION ON EMPLOYMENT DURATION AND EFFICIENCY: AN EXPERIMENTAL STUDY

If the future market wage is uncertain, engaging in long‐term employment is risky, with the risk depending on how regulated the labor market is. In our experiment long‐term employment can result either from offering long‐term contracts or from repeatedly and mutually opting for rematching. Treatments differ in how regulations restrict the employer's flexibility in adapting the employment contract. All treatments allow for longer contract duration as well as for mutually opting to be rematched. Effort is chosen by employees after a contract is concluded. Treatments vary from no contract flexibility to no restriction at all. Will more (downward) flexibility be used in ongoing employment but reduce labor market efficiency? And will regulation crowd out long‐term employment, in the form of long‐term contracts or voluntary rematching? (JEL C72, C90, F16, J21, J24, L10)     

CONTRACTS AS RENT‐SEEKING DEVICES: EVIDENCE FROM GERMAN SOCCER

Recent theoretical research has identified many ways how contracts can be used as rent‐seeking devices vis‐à‐vis third parties, but there is no empirical evidence on this issue so far. To test some basic qualitative properties of this literature, we develop a theoretical and empirical framework in the context of European professional soccer where (incumbent) teams and players sign binding contracts which, however, are frequently renegotiated when other teams (entrants) want to hire the player. Because they weaken entrants in renegotiations, long‐term contracts are useful rent‐seeking devices for the contracting parties. However, they reduce the likelihood of (mutually beneficial) transfers, which generates a trade‐off in the spirit of Aghion and Bolton (1987). Using a data set from the German “Bundesliga,” our model predictions are broadly confirmed. (JEL L14, J63, L40, L83)     

GOVERNMENT DEBT‐THRESHOLD CONTRACTS

Politicians tend to push the amount of public debt beyond socially desirable levels in order to increase their reelection chances. We develop a model that provides a new explanation for this behavior: office holders undertake debt‐financed public projects, but postpone the timing of part of the output to the next term. This makes it difficult to replace them. As a consequence, the office holders' reelection chances rise—as does public debt. As a potential remedy for this inefficiency, we allow candidates for public office to offer government debt‐threshold contracts. Such a contract contains an upper limit for government debt and the sanction that an office holder violating this limit cannot stand for reelection. We show that such competitively offered contracts contain low debt levels that limit debt financing and improve the citizens' welfare. When negative macroeconomic events occur, government debt‐threshold contracts may be violated, and the economy is stabilized. (JEL: D7, D82, H4)     

NET TIME NEGOTIATIONS WITHIN THE FAMILY

Drawing on data from one-on-one and focus group interviews with high school students from schools in agricultural California, this research examines how American families negotiate what we call net time. The article explores intra-familial bargaining over time spent on the internet. Analysis pays special attention to families that prioritize capital-enhancing activities such as schoolwork and college applications. In these families, access to resources is guided by implicit social contracts between parents and children, as well as between siblings. The findings illuminate how these social contracts imply particular rights and responsibilities depending on the families' level of wiredness: highly wired, partially wired, and unwired families. Comparing the experiences of students from these three groups reveals that members of each kind of family experience a different form of net time. While youths from highly wired families enjoy individualized net time, members of partially wired families divvy up household net time. The most disadvantaged youth come from unwired families in which family members must make sacrifices for youth to obtain net time outside of the household. The examination illuminates the logics that underpin the familial negotiations over each kind of net time. Ultimately, familial social contracts over net time have the power to encourage or hinder use of net time for capital-enhancing activities.     

REPEATED LOBBYING BY COMMERCIAL LOBBYISTS AND SPECIAL INTERESTS

Developing a lobbying model of repeated agency, we explain previously unexplained features of the real‐world lobbying industry. Lobbying is divided between direct representation by special interests to policymakers, and indirect representation where special interests employ professional intermediaries called commercial lobbyists to lobby policymakers on their behalf. Our analytical structure allows us to explain several trends in lobbying. For example, using the observation that in the United States over the last 20 years, policymakers have spent an increasing amount of their time fundraising as opposed to legislating, we are able to explain why the share of commercial lobbyist activity in total lobbying has risen dramatically and now constitutes over 60% of the total. The key scarce resource in our analysis is policymakers' time. Policymakers allocate this resource via implicit repeated agency contracts that are used to incent special interests and commercial lobbyists to provide a mix of financial contributions and information on policy proposals. These implicit agency contracts solve both an information problem in the presence of unverifiable policy information and a contracting problem in the absence of legal enforcement. These repeated relationships, that are often described using the pejorative term “cronyism” in the popular press, may in certain circumstances be welfare improving. (JEL D72, D82, H1, P16)     

FLEXIBLE CONTRACTS AND SUBJECTIVE WELL‐BEING

Theory suggests that when workers choose between permanent and flexible contracts, their utility should tend to equalize across contract types. New estimates of job satisfaction show the critical role played by unmeasured worker heterogeneity. They reveal that flexible contracts are a strong negative determinant of satisfaction with job security but are often a positive determinant of other dimensions of job satisfaction. As a consequence, flexible contracts have either a weak negative influence or no influence on overall job satisfaction. Moreover, flexible contracts generally have no impact on overall life satisfaction of the employed. These results appear broadly consistent with the presence of equalizing differences. (JEL J28, J41)     

A limit theorem on the dual core of a distributive social system

I consider abstract social systems where the distribution of wealth is an object of common concern. I study, in particular, the systems where liberal distributive social contracts consist of the Pareto-efficient distributions that are unanimously preferred to the initial distribution. I define a Dual Distributive Core from a process of decentralized auction on the budget shares of Lindahl associated with net transfers, operated by coalitions aiming at increasing the value of the public good for their members while maintaining their utility levels. I establish that the dual distributive core converges, as the number of distributive agents becomes large relative to the number of agent types, to a typically finite number of distributive liberal social contracts, which correspond to the Lindahl equilibria that are unanimously preferred to the initial distribution. This process of decentralized auction provides a theoretical foundation for contractual policies of redistribution. The comparison with the usual notion of core with public goods (Foley 1970) yields the following results in this context: the Foley-core is a subset, generally proper, of the set of liberal distributive social contracts; it does not contain, in general, distributive Lindahl equilibria.     

Organizational Uncertainty and Labor Contracts in China's Economic Transition

Lifetime employment was a cornerstone of the Chinese socialist system constructed under Mao. In this system, organizations served the function of social security, and as a result, many organizations were overburdened with bloated work forces and retirees that drew from organizational coffers well into old age. Labor contracts fundamentally alter this system, as they allow firms to end the socialist institution of lifetime employment. Yet there is significant variation on the institutionalization of labor contracts in organizations. Based on a sample of 81 firms in industrial Shanghai, I show that organizations that are experiencing uncertainty in the economic transition are more likely to institutionalize labor contracts on an organizationwide basis. There are two types of organizational uncertainty in the economic transition: economic uncertainty and administrative uncertainty. In cases of economic uncertainty, firms that lost money in 1990 and firms that are burdened by large forces of retired workers are more likely to place their workers on labor contracts. In the case of administrative uncertainty, firms that are at the highest levels of the industrial hierarchy are also significantly more likely to place their workers on labor contracts. Although these upper level firms were the most protected under the command economy, they are being forced to handle the greatest among the responsibilities in the economic transition, and as a result, they experience the greatest sense of being set adrift by the state.     

How temporary is temporary employment in Spain?

I use a multinomial logit model and the Spanish Active Population Survey (EPA) for the period 1987–1996 to study labor force transitions of temporary workers. These workers hold fixed-term employment contracts, which Spanish labor law distinguishes from indefinite contracts. Since the EPA questionnaire allows the identification of workers with either type of contract, I use matched EPA files to analyze transitions from temporary to permanent employment and explore the extent to which workers holding fixed-term employment contracts tend to be trapped in temporary employment relationships. I am grateful to an anonymous referee for helpful comments and suggestions. Pedro Albarrán-Pérez provided excellent research assistance.     

OPTIMAL ENFORCEMENT OF NONCOMPETE COVENANTS

Noncompete covenants or covenant not to compete (CNC) are clauses in employment contracts in which the employee agrees not to gain employment with a competitor firm. In this article, we study the efficiency aspects of such contracts by incorporating the effect of labor mobility restrictions on knowledge transfer across firms, investment decisions by firms, and investment by workers. Following research that shows state‐wise variations in the degree of CNC enforcement, we allow the strength of CNC enforcement to vary as a matter of regulatory policy and derive the optimal strength of enforcement. We also look at how regulations around CNCs should be optimally designed when employers can use collusive agreements, such as “no poaching” agreements, as an alternative to noncompete clauses. Given recent allegations of employer collusion among large Silicon Valley firms, we argue for a cautious approach in designing policies on CNC enforcement. (JEL J24, J41, J63, K31)     

Two-sided market situations with existing contracts

The main aim of this paper is to study two-sided market situations where there are existing contracts which are exogenously given. These existing contracts could come from a previous competitive period or from any other circumstances. In any case, all these existing contracts provide an initial feasible solution for the two-sided market situation, perhaps non optimal in the sense the agents do not obtain jointly the maximum profit that they could get by cooperation. Therefore, the agents could be interested in improving their results through cooperation but taking into account the existing bilateral contracts. Thus, taking as starting point what each agent has got with the existing contracts, they have to distribute among themselves the extra amount that they could get by cooperation. For this kind of cooperative situation we propose different models and prove some results about the nonemptiness of the core and its relationship with the Owen set.     

LABOR CONTRACTS AND FLEXIBILITY: EVIDENCE FROM A LABOR MARKET REFORM IN SPAIN

This paper evaluates the effects of a labor market reform in Spain that removed restrictions on fixed‐term or temporary contracts. Our empirical results are based on longitudinal firm‐level data that cover observations before and after the reform. We posit and estimate a dynamic labor demand model with indefinite and fixed‐term labor contracts, and a general structure of labor adjustment costs. Experiments using the estimated model show important positive effects of the reform on total employment (i.e., a 3.5% increase) and job turnover. There is a strong substitution of permanent by temporary workers (i.e., a 10% decline in permanent employment). The effects on labor productivity and the value of firms are very small. In contrast, a counterfactual reform that halved all firing costs would produce the same employment increase as the actual reform, but much larger improvements in productivity and in the value of firms. (JEL J23, J32, J41)     

Sailing together from different shores: labour markets and inequality on board merchant ships

In this study, we analyse the consequences of the conditions of the labour‐market contracts for working on board merchant ships. More specifically, we examine how seafarers hired on different contracts work together. Seafarers’ conditions of work differ considerably: some, mainly workers in the West, have permanent contracts with a shipping company, are paid a relatively high monthly wage and can go ashore every second month, whereas others performing the same tasks may have to stay at sea for more than six months at a time, and work for less money on temporary contracts. Drawing on the economic sociology of markets and institutional theory, in this article we present the institutional conditions of globalized labour markets for seafarers and analyse unique data derived from observations and interviews on board merchant ships. We argue that the notion of market is a key explanatory factor for how the work is conducted on board. Theoretically, our elaboration on markets allows us to conceptualize and address global and transnational markets.     

Does the early bird always get the worm? market institutions and the timing of employment decisions

Unravelling of appointment dates can be observed in some entry-level labor markets but not in others. A comparison of different markets shows how the costs of breaking contracts and being rematched can affect the timing of appointments and market behavior. If contracts can be terminated at any time by workers and if rematching costs are relatively small compared to the benefits from changing matches, early appointments in an entry-level labor market confers no benefit on firms. Firms then have no incentives to make early offers. However, if the costs offset the benefits from changing employment, firms that cannot compete with their principal competitors may prefer to make offers before some critical information becomes available rather than wait for the time when employment can actually start. Such a labor market may experience early appointments. But if the most desirable firms do not issue early offers, other firms may be rejected in any early period. Therefore, the most desirable firms can work together to halt unravelling. I am indebted to Esquire Donna Gerson and Koh Song Hui who extended help in writing this paper. My special thanks should be given to Alvin Roth for his suggestions and comments.     

CONTRACT DELEGATION WITH BARGAINING

In the theoretical literature on contract delegation, it is assumed that the contractor has all the bargaining power when contracts are proposed to the subcontractee. In this case, the principal prefers centralized to decentralized contracting structures. This paper analyzes the consequences of relaxing this assumption. It is shown that when contracts are determined by bargaining, the principal might prefer decentralization to centralization. Furthermore, it is shown that this can happen even when subcontractees have very little bargaining power. The results explain, for example, the coexistence of centralized and decentralized contracting in public procurement. (JEL D23, D82, L22)     

ENDOGENOUS TIMING IN CONTESTS WITH DELEGATION

We study two‐player contests in which each player hires a delegate, and the delegates decide endogenously when to expend their effort. First, we look closely at the delegates' decisions on when to expend their effort, given contracts between the players and the delegates, and look at the players' decisions on their contracts. Then, we compare the outcomes of the endogenous‐timing framework with those of the simultaneous‐move framework. We show that the higher‐valuation player offers her delegate greater contingent compensation than her opponent, the delegate of the higher‐valuation player chooses his effort level after observing his counterpart's, the equilibrium expected payoff of the delegate of the higher‐valuation player is greater than that of his counterpart, and economic rent for each delegate exists. We show that, in the endogenous‐timing framework, each player offers her delegate better contingent compensation, each delegate's expected payoff is greater, and each player's expected payoff is smaller, as compared with the simultaneous‐move framework. (JEL D72)     

BACK-LOADED WAGES AND ON-THE-JOB TRAINING IN A FRICTIONAL LABOR MARKET

This paper analyzes the coexistence of on-the-job (general) training and on-the-job search in a frictional labor market where firms post skill-dependent labor contracts to preemptively back-load compensation after training. The back-loaded compensation scheme discourages trained workers' efficient job-to-job transition, as if they accumulated relationship-specific capital, which induces overintensified training among more productive firms. The quantitative analysis predicts that the market equilibrium, relative to the efficiency benchmark, gets more skilled workers (training inefficiency) and less output (allocation inefficiency). It further demonstrates that efficiency loss is moderate due to positive externality and can be improved, as search friction is mitigated. (JEL J24, J31, J64)     

Leisure: how to promote inpatient motivation after discharge

1. A group of psychiatric inpatients followed plans to participate in leisure activities after discharge at significantly higher levels when treated with classes and written contracts; or classes, written contracts, and musical entertainment; rather than with classes alone. 2. Inpatient classes for psychiatric patients should be coupled with other interventions, such as contracts or musical entertainment, to assist patients to attain therapeutic goals after discharge. 3. The utilization of written goal-setting contracts seems to have merit as a routine nursing intervention with psychiatric inpatients. 4. The use of a written contract left with the patient may promote or enhance a nurse/patient transaction.