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- Title
THE SOCIAL EFFICIENCY OF FIXED WAGES.
- Authors
Johnson, William R.
- Abstract
This paper analyzes a model in which fixed wages and layoffs may be the most efficient way to organize employment contracts. When wages fluctuate to reallocate labor among firms, workers must make costly decisions and may undertake excessive search. In contrast, if all firms reallocate labor with layoffs and new hires at fixed wages, only those workers laid off will have decisions to make. The lower decision costs of the fixed wage contract may more than compensate for the resource cost of the unemployment it causes. A novel feature of the model is the result that the socially optimal contract, when chosen by all firms, may not be the privately optimal contract.
- Subjects
LABOR; LABOR contracts; UNEMPLOYMENT; LAYOFFS; WAGES; JOB creation; INDUSTRIES
- Publication
Quarterly Journal of Economics, 1985, Vol 100, Issue 1, p101
- ISSN
0033-5533
- Publication type
Article
- DOI
10.2307/1885737