Transactions Costs and the Employment Contract in the US Economy

In this paper we adapt the model of MacLeod (2007) to provide one way to formally implement some of Williamson's ideas regarding the effect of transactions costs upon employment relationship. We then explore the empirical implications of this model with a data set that measures job characteristics using the Dictionary of Occupational Titles (DOT), and merge this data set with the Panel Study on Income Dynamics (PSID). We find that viewing the data through the lens of transactions costs economics provide a useful way to organize the data on compensation in the US labor market.