Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Cleveland
Working Papers (Old Series)
Implicit contracts, on-the-job search and involuntary unemployment
Charles T. Carlstrom
Abstract

This paper extends the implicit contracts framework to allow for on-the-job search. It is shown that involuntary unemployment can arise in such a framework without placing any a priori restrictions on either wages or severance payments. The model also implies that firms will practice a two-tier system of adjusting their labor force. In the first stage, workers who receive outside job offers leave the firm. The second stage consists of firms hiring additional workers during good states of nature, and laying off workers during bad states of nature. Furthermore, during "bad enough" states of nature, firms will offer a severance payment or bonus for those who want to voluntarily leave, and then lay off workers without offering a large enough severance payment to compensate them for being unemployed.


Download Full text
Cite this item
Charles T. Carlstrom, Implicit contracts, on-the-job search and involuntary unemployment, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 8712, 1987.
More from this series
JEL Classification:
Subject headings:
Keywords: Labor supply ; Unemployment ; Wages
For corrections, contact 4D Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal