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Uncertainty and front-end loading of labor agreements


Uncertainty of future prices is offered as an explanation for front-end loading of real wages in nominal wage contracts. Exploitation of mutually beneficial gains from trade between risk-neutral employers and employees implies an expected future real wage that is lower the greater is the uncertainty of future prices, and the observed extent of front-end loading is consistent with plausible values of uncertainty of future prices.

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I would like to thank, without implicating, M. L. Burstein, George Fallis, and an anonymous referee for helpful comments.

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Beare, J.B. Uncertainty and front-end loading of labor agreements. Journal of Labor Research 6, 113–117 (1985).

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  • Wage Rate
  • Real Wage
  • Nominal Wage
  • Efficient Wage
  • Future Prex