Why Is Evidence for Implicit Contracts in the Labour Market So Scarce?

Under simple assumptions, opportunities exist for risk-averse workers to trade risk with less risk-averse employers by accepting a lower mean wage in return for greater certainty. Empirical evidence for the existence of such implicit contracts is, however, notably scarce. A simple explanation for this apparent paradox is that the incentives to such risk-trading are greatly reduced by strong positive serial correlation in the state of the labor market. Copyright 1991 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia