Contract-Theoretic Approaches to Wages and Displacement
- Author(s): den Haan, Wouter J.;
- Ramey, Garey;
- Watson, Joel
- et al.
This paper develops a theoretical framework for analyzing contracting imperfections in long-term employment relationships. We focus chiefly on limited enforceability and limited worker liquidity. Inefficient severance of employment relationships, payment of efficiency wages, the relative responses of wages and employment to business cycle shocks, and the propagation of these shocks are linked to the nature of contracting imperfections.