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Labour Markets form the Microeconomic perspective: Implicit Contract Theory
Author(s) -
Sloan Judith,
Wooden Mark
Publication year - 1984
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/j.1467-8462.1984.tb00463.x
Subject(s) - implicit contract theory , economics , unemployment , wage , reputation , perspective (graphical) , involuntary unemployment , labour economics , context (archaeology) , rigidity (electromagnetism) , microeconomics , labor relations , macroeconomics , law , political science , paleontology , structural engineering , artificial intelligence , biology , computer science , engineering
This paper deals with a recent development in labour economics ‐ that of implicit contract theory. A major impetus to its development has been the existence of involuntary unemployment and wage rigidity. In reality, there have been two streams of development ‐ one associated with the name of Okun which focusses on the fixed costs of employing labour and the importance of reputation for reliability on the part of employers. The other emphasises differences in risk‐aversion between employers and workers, viewing the implicit contract as a form of risk shifting. Both theories provide insights into the workings of labour markets, in particular, the pervasiveness of long‐term employment relations. although difficulties arise in terms of the enforceability of contracts. The broader literature on internal labour markets in useful in this context.