Worker response to a menu of implicit contracts.
- UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
- Albert N. Link, Professor (Creator)
- Institution
- The University of North Carolina at Greensboro (UNCG )
- Web Site: http://library.uncg.edu/
Abstract: The literature on implicit contracts between workers and firms suggests
that workers face a variety of such contracts, allowing each to choose the optimal
trade-off between earnings level and earnings stability. This study tests
some implications of that theory through an examination of the risk behavior
of individual heads of households. The data source is the University of
Michigan Panel Study of Income Dynamics, which includes a measure of the
worker's taste for risk avoidance. Additionally, several predictions derived
from Arrow's postulate of increasing relative risk aversion are examined. The
results confirm a tendency of risk-averse individuals to choose jobs offering
lower wages and lower financial risk. The results also provide indirect support
for Arrow's postulate. The paper's findings suggest that studies of the
earnings effects of discrimination may possibly understate those effects, just
as studies of the value of a human life may understate that value.
A NUMBER of articles appeared almost
/vsimultaneously in 1974-75 on the
subject of implicit contracts between workers
and firms.' All sought to provide a rationale
based on utility-maximizing be-
•Don Bellante is a professor of economics at Auburn
University and Albert Link is a professor of economics
at the University of North Carolina at Greensboro.
They appreciate helpful comments on earlier versions
by Timothy Deyak, Robert M. Feinberg. Barry Hirsch,
Fred Johnson, James E. Long, and J. Wilson Mixon.
'Costas Azariadis, "Implicit Contracts and Underemployment
Equilibria," Journal of Political Economy,
Vol. 83, No. 6 (November/December 1975),
pp. 1183-1202; Martin Baily, "Wages and Employment
under Uncertain Demand," Review of Economic
Studies, Vol. 41, No. 1 (January 1974), pp. 37-
50; and
Worker response to a menu of implicit contracts.
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Additional Information
- Publication
- Language: English
- Date: 1982
- Keywords
- implicit contracts, employment contracts, labor relations, earnings stability, risk behavior, risk avoidance, financial risk, earnings discrimination