This paper explores the rationale for unemployment beneÞts as a complement to optimal non-linear income taxation. High-skilled workers and low-skilled workers face different exogenous risks of being unemployed. As long as the low-skilled workers face a higher unemployment risk, we Þnd that there is a case for over-insuring the lowskilled, hence the unemployment beneÞts of the low-skilled should...

We measure U.S. publicly traded companies’ exposures to skilled labor risk, i.e., the potential failure in attracting and retaining skilled labor, by the intensity of their discussions on this issue in their 10-K filings. We show that this measure effectively captures firm risk due to the mobility of skilled labor. We find that skilled labor risk is an important determinant of corporate compens...

The consequences of introducing or tightening time limits on receiving high unemployment benefits are studied in a shirking model. Stricter time limits have an ambiguous impact on the net wage, and changes of utility levels of employed workers and recipients of high unemployment benefits have the same sign as the variation in the net wage. The utility differential between the two groups of unem...

Redundancy payments for collective dismissals are incorporated into a Shapiro-Stiglitz model of efficiency wages. It is shown that a fixed payment will lower wages, leave employment and welfare unaffected if there are no wage-dependent taxes, no additional firing costs and if unemployment benefits are not altered by redundancy payments. If payroll taxes exceed firing costs and unemployment bene...

Real and Nominal Wage Rigidity in a Model of Equal-Treatment Contracting Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminate based on a year of entry to a firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions of downward wage rigidity, w...

This paper studies optimal relational contracts in motivating workers in a market setting. We find that labor markets with higher turnover costs will use more subjective performance pay and less efficiency wages and that in those markets, the total wage payment is lower and the equilibrium employment level is higher. Surprisingly, under certain conditions, an increase in turnover costs leads to...

Extension of Labor Contracts and Optimal Backpay This paper explains why a union and a firm might settle on a contract duration that may later be extended and characterizes the optimal backpay for the holdout period. It is shown that the choice between concluding a shorter contract that may be extended and immediately concluding a longer contract depends on the prevalence of the different types...

This paper reconstructs the evolutionary path of the contract of employment in English law. It demonstrates that the contract of employment is a more recent innovation than is widely thought, and that its essential features owe as much to legislation as they do to the common law of contract. The master-servant model of the nineteenth century was only displaced by the modern contract of employme...

Potential, Prizes and Performance: Testing Tournament Theory with Professional Tennis Data This paper tests two hypotheses from the theory of elimination tournaments: (i) that uneven tournaments, where the contestants are ex ante heterogeneous, entail lower effort exertion; this is a prediction from agency theory that has not been tested empirically before; and (ii) whether incentives set throu...

The Nobel Prize committee awarded the 2006 Nobel Peace Prize to Muhammad Yunus and the Grameen Bank “for their efforts to create economic and social development from below.” The microfinance revolution has come a long way since Yunus first provided financing to the poor in Bangladesh. The committee has recognized microfinance as “an important liberating force” and an “ever more important instru...