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| Author: | Calmfors, L. Johansson, Å. |
| Title: | Unemployment benefits, contract length and nominal wage flexibility |
| Journal: | Scandinavian Journal of Economics
2004 : VOL. 106:1, p. 23-44 |
| Index terms: | Employment contracts Macroeconomics Unemployment |
| Freeterms: | Nominal wage flexibility |
| Language: | eng |
| Abstract: | In bargaining model, it is shown that a decrease in the unemployment benefit levels increases not only equilibrium employment, but also nominal wage flexibility, and thus reduces employment variations in the case of nominal shocks. Long-term wage contracts lead to higher expected real wages and hence higher expected unemployment than short-term contracts. Therefore, a decrease in the benefit level reduces the expected utility gross of contract costs of a union member more with long-term than with short-term contracts, thereby creating an incentive for shorter contracts. |
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