Vassar College Digital Library
Abstract
Implicit contract models of labor market equilibrium under work sharing and layoffs are constructed to examine several common explanations for the observed market bias in favor of layoffs. We first establish the optimality of work sharing in the absence of complicating factors. We then show that, contrary to the conventional view, fringe benefits can actually encourage work sharing, and that different hours and employment elasticities of output need not discourage it. Our findings confirm the view that tax distortions in the unemployment insurance system contribute to the bias toward layoffs. However, we show that unemployment benefits for those working reduced hours can help eliminate this bias.
Details
Department or Program
Document Type
Issue Number
2
Page Numbers
251-267
Paper Number
2
Peer Reviewed
Reviewed
Publication Date
1989-10-01
Volume Number
8
English
Repository Collection
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