An implicit contract is a theoretical construct meant to describe complex agreements, written and tacit, between employers and employees, which govern the exchange of labour services when various types of job-specific investments inhibit labour mobility, and opportunities to shed risk are limited by imperfectly developed markets for contingent claims. This construct differs from the more familiar one of a neoclassical labour exchange in emphasizing a trading process, frequently over a long period of time, between two specific economic units (say a worker and a firm, union and management, etc.) rather than the impersonal, and often instantaneous, market process in which wages decentralize and coordinate the actions of labour suppliers and labour demanders.
KeywordsLabour Supply Business Cycle Wage Rate American Economic Review Insurance Contract
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