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LABOR MARKET SHARE CONTRACTS WHEN THE FIRM HAS TWO VARIABLE INPUTS
Author(s) -
Ellis Christopher J.
Publication year - 1988
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1988.tb01527.x
Subject(s) - economics , unemployment , variable (mathematics) , incentive , wage , microeconomics , compensation (psychology) , labour economics , production (economics) , efficiency wage , market share , macroeconomics , psychology , mathematical analysis , mathematics , finance , psychoanalysis
This paper extends Weitzman's analysis of share contracts. Firstly, a second variable input is introduced into a firm's production technology. Some share contracts give the firm an incentive to reduce worker compensation by manipulating the second variable input. This implies that contracts which possess this property cannot support the same long‐run equilibrium as would be achieved with a wage contract. Secondly, a positively sloped labor supply curve is introduced. It is shown that while share contracts reduce involuntary unemployment, they may not reduce total unemployment vis‐a‐vis wage contracts. The paper identifies the factors which determine relative employment variability.