Research Discussion Papers, Bank of Finland
No 12/2010:
New evidence on implicit contracts from linked employer-employee data
Juha Kilponen ()
and Torsten Santavirta ()
Abstract: We improve the precision of the test of the implicit
contract model that Beaudry and DiNardo proposed twenty years ago. Our data
set allows us to define the precise industry and plant of a particular
employment relationship, link local labour market characteristics and
company characteristics to the individual level of wages, and control for
composition effects. We find evidence in favour of the spot market model of
wage setting in the whole sample, but there is significant variation across
industries and educational levels. In particular, the spot market matters
most for low-skill workers, while the implicit contract model with
one-sided limited commitment applies better to high-skill workers.
Keywords: wage cyclicality; limited commitment; match-specific fixed effects; (follow links to similar papers)
JEL-Codes: E32; J41; J64; (follow links to similar papers)
26 pages, April 28, 2010
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