Department of Economics

Many authors have discussed an apparent shift to a new employment contract characterized by less commitment between employer and employee, and closer ties between wages within the enterprise and those in the external labor market. We study the issue of when people in the U.S. and Canada feel pay cuts are fair. In contrast to much previous discussion, we find no evidence of increasing acceptance of pay cuts--a measure of whether external, not internal, labor markets are considered fair. These results suggest that new organizational forms might do well to preserve some features of the “old” employment contract.