We propose a theory to explain the choice between nominal and indexed labor contracts. We find that contracts should be …

-skilled industries. Our theory is that low-skilled workers get relatively less insurance from their firms because they have relatively … attractive, and hence decrease the amount of risk sharing sustainable within the firm. Evidence on average displacement costs by … industry support the theory's predictions …

We analyze the contractual relation between workers and their employers when there is nominal risk. The key feature of … eliminate all nominal risk for the parties (by fully indexing the terms of the contracts to the price level) but they would be …