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A signalling approach to wage rigidity and layoffs

Authors
Journal
European Economic Review
0014-2921
Publisher
Elsevier
Publication Date
Volume
31
Issue
7
Identifiers
DOI: 10.1016/s0014-2921(87)80035-1
Disciplines
  • Economics

Abstract

This paper presents an alternative approach to optimal labour contracts where rigid wages are used to convey information rather than to insure workers. Firms with favourable probability distributions over revenue functions signal this to workers by means of wage rigidities and employment distortions, including the possibility of layoffs. This occurs in the absence of any risk aversion.

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