The Existence of Self-enforcing Implicit Contracts* Clive Bull
نویسندگان
چکیده
This paper is an effort to explain, in part, an empirical paradox in the U. S. labor market. Many types of behavior in this market, notably layoff and real wage behavior, have proved inexplicable if the labor market is modeled as a sequence of spot auction markets. However, if we treat trade in this market as being mediated via long-term contracts, we gain a great deal of explanatory power. A particular example of this is the progress made by the "implicit" contract literature [Azariadis, 1975; Baily, 1974; Gordon, 1974]. There is, though, one major problem with explaining U. S. labor market behavior in terms of optimal contracts, and that is that explicit labor contracts are rare. Indeed, labor contracts are almost coterminous with the unionized sector of the labor market, which means that, at most, 20 percent of the U. S. labor market is governed by contracts.' Thus, we have a puzzle: much behavior in the labor market seems to be explicable only in terms of long-term labor contracts, and yet such contracts are rare.2 This puzzle can be sharpened into the following two distinct,
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