Fair pay and a Wage-Bill Argument for low Real Wage Cyclicality and Excessive Employment Variability

Fair pay and a Wage-Bill Argument for low Real Wage Cyclicality and Excessive Employment Variability

This article considers a two-period optimal contracting model in which firms make new hires in the second period subject to the constraint that they cannot pay discriminate either against or in favour of the new hires. In the absence of fully contingent contracts, it is shown that wages are less fle...

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Bibliographic Details
Published in:The Economic journal (London) Vol. 115; no. 506; pp. 833 - 859
Main Author: Thomas, Jonathan P.
Format: Journal Article
Language:English
Published: Oxford, UK Blackwell Publishing Ltd 01-10-2005
Blackwell Publishers
Oxford University Press
Subjects:
Contracts
Economic models
Employment
Employment discrimination
Employment policy
Equal pay
Hiring
Incumbents
Labor markets
Labour economics
Layoffs
Low income
Mathematical methods
New employees
Studies
Unemployment
Wage rates
Wages
Wages & salaries
Workforce
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Summary:This article considers a two-period optimal contracting model in which firms make new hires in the second period subject to the constraint that they cannot pay discriminate either against or in favour of the new hires. In the absence of fully contingent contracts, it is shown that wages are less flexible than needed for efficient employment levels, with the result that too few hires are made in bad states of the world. Unemployment is involuntary. In an extension to the model, there may also be involuntary and excessive layoffs in some states of the world.
Bibliography:ark:/67375/WNG-8K4H5KRF-L
ArticleID:ECOJ1021
Paper presented at The Royal Economic Society Conference at St. Andrews (2000). I am very grateful for the comments of three referees, David de Meza, and for suggestions from Andrew Oswald, John Hardman-Moore, Gavin Reid, Felix Fitzroy, Alan Sutherland, Neil Rankin, Bob Hart, Peter Sloane, Nigel O'Leary and participants at talks at Dundee, Aberdeen, Cardiff and Stirling. I am also very grateful to Pearl Mok of Graduate Prospects for supplying data on graduate salaries.
istex:F1B252BFEBC7F6121671B1BC1661C13BFB503D73
Paper presented at The Royal Economic Society Conference at St. Andrews (2000). I am very grateful for the comments of three referees, David de Meza, and for suggestions from Andrew Oswald, John Hardman‐Moore, Gavin Reid, Felix Fitzroy, Alan Sutherland, Neil Rankin, Bob Hart, Peter Sloane, Nigel O'Leary and participants at talks at Dundee, Aberdeen, Cardiff and Stirling. I am also very grateful to Pearl Mok of Graduate Prospects for supplying data on graduate salaries.
ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0013-0133
1468-0297
DOI:10.1111/j.1468-0297.2005.01021.x