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A Dynamic Contracting Model for Wages and Employment in Three European Economies

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de la Croix, David [UCL] Palm, Franz [University of Limburg] Pfann, Gérard [University of Limburg]

We present a dynamic non-linear model for an efficient contracting between a firm facing adjustment costs on labour and a union having preferences which are subject to habit formation. The model’s first order necessary conditions are estimated for the French, the Dutch and the Belgian labour market. The estimation results turned out to be remarkably similar for the three countries. Two alternative hypotheses are also investigated : (i) a myopic behaviour of the union and (ii) a competitive labour market. The performance of the efficient contract model with a forward-looking union is found to be superior to that of the neo-classical model in explaining the dynamics of employment and wages in the three countries.

Document type Document de travail (Working Paper)
Publication date 1993
Language Anglais
Number of pages 19 pages
Collection IRES Discussion Paper - 9321
Affiliations UCL - ESPO/ECON - Département des sciences économiques
University of Limburg - Faculty of economics and business administration
Keywords Employment ; Wages
Links
Bibliographic reference de la Croix, David ; Palm, Franz ; Pfann, Gérard. A Dynamic Contracting Model for Wages and Employment in Three European Economies. IRES Discussion Paper ; 9321 (1993) 19 pages
Permanent URL http://hdl.handle.net/2078.1/76025