Transaction Costs and the Employment Contract in the US Economy

MacLeod, W. Bentley; Parent, Daniel

The purpose of this paper is to use transaction cost economics (as in Williamson, Wachter and Harris (1979) and Williamson (1981)) to explore the relationship between job characteristics and observed employment contracts. Transaction cost considerations lead to jobs characterized by either normal or complex ex- change. This in turn implies two contracting modes: contingent pay (fixed wage or piece rate/commission contract) or non-contingent pay (salary with possibly a bonus). We show empirically that observed job characteristics, as measured by the Dictionary of Occupational Titles (DOT), can explain the contract form observed in the Panel Study on Income Dynamics (PSID). Second, we discuss the implications of contract form for wages and mobility, and show that non- contingent pay jobs have more able workers in more durable relationships.



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More About This Work

Academic Units
Institute for the Study of Labor
IZA Discussion Paper, 7306
Published Here
December 6, 2013