Working Paper: NBER ID: w2238
Authors: Shulamit Kahn; Kevin Lang
Abstract: Most models of implicit lifetime contracts imply that at any particular point in time, workers' wages and value of marginal product (VMP) will diverge. As a result, the contract will have to specify hours as well as wages, since firms will desire to prevent workers from working more when the wage is greater than VMP and from working less when the wage is less than VMP. this divergence, combined with the fact that in efficient contracts, the hours are set so that VMP equals the marginal value of leisure, implies that workers will face binding hours constraints. We show that the two major models of lifetime contracts, the agency model and the firm-specific capital model, make opposite predictions regarding the relation between work hours constraints and job tenure. We test these predictions. Our results indicate that neither model of efficient long-term contracts explains the observed pattern of hours constraints. Therefore, we briefly consider other explanations.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hours constraints (C41) | desire to work more hours (J22) |
| hours constraints (C41) | desire to work less hours (J22) |
| work hours constraints (J22) | job tenure (M51) |
| job tenure (M51) | work hours constraints (J22) |
| agency model (L85) | work hours constraints (low tenure) (J22) |
| agency model (L85) | work hours constraints (high tenure) (J22) |
| firm-specific capital model (G32) | work hours constraints (low tenure) (J22) |
| firm-specific capital model (G32) | work hours constraints (high tenure) (J22) |