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American Economic Journal: Macroeconomics: Vol. 2 No. 3 (July 2010)

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Labor Contracts, Equal Treatment, and Wage-Unemployment Dynamics

Article Citation

Snell, Andy, and Jonathan P. Thomas. 2010. "Labor Contracts, Equal Treatment, and Wage-Unemployment Dynamics." American Economic Journal: Macroeconomics, 2(3): 98-127.

DOI: 10.1257/mac.2.3.98

Abstract

This paper analyses a model in which firms cannot pay discriminate based on year of entry. It is assumed that workers can costlessly quit at any time, while firms are committed to contracts. We solve for the dynamics of wages and unemployment, and show that real wages display a degree of downward rigidity and do not necessarily clear the labor market. Using sectoral productivity data from the post-war US economy, we assess the ability of the model to match the actual unemployment series. We also show that equal treatment follows from the assumption of at-will employment contracting in our model. (JEL E24, E32, J31, J41)

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Authors

Snell, Andy (U Edinburgh)
Thomas, Jonathan P. (U Edinburgh)

JEL Classifications

E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E32: Business Fluctuations; Cycles
J31: Wage Level and Structure; Wage Differentials
J41: Labor Contracts

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American Economic Journal: Macroeconomics


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