Worker-firm relational contracts in the time of shutdowns: experimental evidence.

ABSTRACT: Exogeneous disruptions in labor demand have become more frequent in recent times. The COVID-19 pandemic has resulted in millions of workers being repeatedly laid off and rehired according to local public health conditions. This may be bad news for market efficiency. Typical employment relations-which resemble non-enforceable (implicit) contracts-rely on reciprocity (Brown et al. in Econometrica 72:747-780, 2004), and hence could be harmed when workers' efforts no longer guarantee reemployment in the next period. In this paper we extend the BFF paradigm to include a per-period probability (0%, 10%, 50%) of publicly observable "shutdown", where a specific firm cannot contract with any workers for several periods. A Perfect Bayesian Equilibrium exists in which these shutdowns destabilize rela

SUBMITTER: Linardi S 

PROVIDER: S-EPMC7883973 | biostudies-literature | 2021

REPOSITORIES: biostudies-literature