Contractual Incompleteness, Unemployment, and Labour Market Segmentation

Steffen Altmann; Armin Falk; Andreas Grunewald; David Huffman

doi:10.1093/restud/rdt034

Contractual Incompleteness, Unemployment, and Labour Market Segmentation

Steffen Altmann, Armin Falk, Andreas Grunewald, David Huffman

7 Citationer (Scopus)

Abstract

This article provides evidence that involuntary unemployment, and the segmentation of labour markets into firms offering "good" and "bad" jobs, may both arise as a consequence of contractual incompleteness.We provide a simple model that illustrates how unemployment and market segmentation may jointly emerge as part of a market equilibrium in environments where work effort is not third-party verifiable. Using experimental labour markets that differ only in the verifiability of effort, we demonstrate empirically that contractual incompleteness can cause unemployment and segmentation. Our data are also consistent with the key channels through which the model explains the emergence of both phenomena.

Originalsprog	Engelsk
Tidsskrift	Review of Economic Studies
Vol/bind	81
Udgave nummer	1
Sider (fra-til)	30-56
Antal sider	27
ISSN	0034-6527
DOI	https://doi.org/10.1093/restud/rdt034
Status	Udgivet - 1 jan. 2014

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10.1093/restud/rdt034

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Citationsformater

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keywords = "Contractual incompleteness, Dual labour markets, Incentives, Laboratory experiment, Unemployment",

author = "Steffen Altmann and Armin Falk and Andreas Grunewald and David Huffman",

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AU - Falk, Armin

AU - Grunewald, Andreas

AU - Huffman, David

N1 - JEL Classification: C91, J41, J64, M52, M55

PY - 2014/1/1

Y1 - 2014/1/1

N2 - This article provides evidence that involuntary unemployment, and the segmentation of labour markets into firms offering "good" and "bad" jobs, may both arise as a consequence of contractual incompleteness.We provide a simple model that illustrates how unemployment and market segmentation may jointly emerge as part of a market equilibrium in environments where work effort is not third-party verifiable. Using experimental labour markets that differ only in the verifiability of effort, we demonstrate empirically that contractual incompleteness can cause unemployment and segmentation. Our data are also consistent with the key channels through which the model explains the emergence of both phenomena.

AB - This article provides evidence that involuntary unemployment, and the segmentation of labour markets into firms offering "good" and "bad" jobs, may both arise as a consequence of contractual incompleteness.We provide a simple model that illustrates how unemployment and market segmentation may jointly emerge as part of a market equilibrium in environments where work effort is not third-party verifiable. Using experimental labour markets that differ only in the verifiability of effort, we demonstrate empirically that contractual incompleteness can cause unemployment and segmentation. Our data are also consistent with the key channels through which the model explains the emergence of both phenomena.

KW - Contractual incompleteness

KW - Dual labour markets

KW - Incentives

KW - Laboratory experiment

KW - Unemployment

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JF - Review of Economic Studies

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ER -

Contractual Incompleteness, Unemployment, and Labour Market Segmentation

Abstract

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