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 Citations (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.

Original language	English
Journal	Review of Economic Studies
Volume	81
Issue number	1
Pages (from-to)	30-56
Number of pages	27
ISSN	0034-6527
DOIs	https://doi.org/10.1093/restud/rdt034
Publication status	Published - 1 Jan 2014

Keywords

Contractual incompleteness
Dual labour markets
Incentives
Laboratory experiment
Unemployment

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1093/restud/rdt034

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Cite this

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title = "Contractual Incompleteness, Unemployment, and Labour Market Segmentation",

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AU - Altmann, Steffen

AU - Falk, Armin

AU - Grunewald, Andreas

AU - Huffman, David

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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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JO - Review of Economic Studies

JF - Review of Economic Studies

IS - 1

ER -

Contractual Incompleteness, Unemployment, and Labour Market Segmentation

Abstract

Keywords

UN SDGs

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