Implicit contracts, unemployment, and labor market segmentation

Arbeitspapier

We analyze the impact of imperfect contract enforcement on the emergence of unemployment. In an experimental labor market where trading parties can form long-term employment relationships, we compare a work environment where effort is observable, but not verifiable to a situation where explicit contracts are feasible. Our main result shows that unemployment is much higher when third-party contract enforcement is absent. Unemployment is involuntary, being caused by firms' employment and contracting policy. Moreover, we show that implicit contracting can lead to a segmentation of the labor market. Firms in both segments earn similar profits, but workers in the secondary sector face much less favorable conditions than their counterparts in primary-sector jobs.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 5001

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Group Behavior ; Unemployment: Models, Duration, Incidence, and Job Search ; Personnel Economics: Labor Contracting Devices
• Subject: Incentives ; implicit contracts ; unemployment ; fairness ; dual labor markets ; Theorie der Arbeitslosigkeit ; Arbeitsvertrag ; Implizite Kontrakte ; Leistungsanreiz ; Gerechtigkeit ; Dualer Arbeitsmarkt ; Arbeitsbedingungen ; Test

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Altmann, Steffen ; Falk, Armin ; Huffman, David
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/36857
• Last update: 10.03.2025, 11:44 AM CET