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Title:Wage flexibility in ongoing employment relations: an experiment with a stochastic labor market PDF Logo
Authors:Berninghaus, Siegfried K.
Bleich, Sabrina
Güth, Werner
Issue Date:2007
Series/Report no.:Jena economic research papers 2007,072
Abstract:Facing a stochastic market wage, which is independent of their own hiring policy, employers offer contracts specifying fixed wage, revenue share and employment duration. In ongoing employment relations it depends on the treatment whether fixed wages can be only increased or also decreased. Will the uncertainty of the future market wage and less wage flexibility lead to temporary employment? And, if not, will employers adjust wages to changing market wages and will workers in ongoing employment relations react to wage decreases via effort choices? Our results partly question empirical claims, e.g. of Bewley (1995), and confirm the tendency to establish ongoing employment relations. Granting more wage flexibility to employers altogether questions rather than enhances efficiency since it induces opportunistic wage cuts to which employees react with lower efforts.
Subjects:noncooperative game
labor contracts
labor market flexibility
principalagent theory
experimental economics
Document Type:Working Paper
Appears in Collections:Jena Economic Research Papers (2007-2014), Max-Planck-Institut für Ökonomik und Universität Jena

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