Transaction Costs and the Employment Contract in the US Economy
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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