Memorandum,
Oslo University, Department of Economics

Abstract: We study a two-period model of efficient labor contracts between a firm and its workers, where firings and voluntary quits but no new hirings occur in period 2. We demonstrate that an increase in the firm's firing cost always raises average employment over the two periods when this cost is initially "high", and may or may not raise average employment when it is initially "low".

Keywords: CONTRACTS; ENTREPRISES; WORKERS; PRICING

JEL-codes: J40; J41; J21

12 pages, 1996

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