Unemployment Benefits, Contract Length and Nominal Wage Flexibility
In a bargaining model, we show that a decrease in the unemployment benefit level increases not only equilibrium employment, but also nominal wage flexibility, and thus reduces employment variations in the case of nominal shocks. Long-term wage contracts lead to higher expected real wages and hence higher expected unemployment than short-term contracts. Therefore, a decrease in the benefit level reduces the expected utility gross of contract costs of a union member more with long-term than with short-term contracts, thereby creating an incentive for shorter contracts. Incentives for employers are shown to change in the same direction. Copyright The editors of the "Scandinavian Journal of Economics", 2004 .
Year of publication: |
2004
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Authors: | Calmfors, Lars ; Johansson, Asa |
Published in: |
Scandinavian Journal of Economics. - Wiley Blackwell, ISSN 1467-9442. - Vol. 106.2004, 1, p. 23-44
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Publisher: |
Wiley Blackwell |
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