1975/12/01 by Costas Azariadis · 1,262 citations
Economics, Econometrics and Finance · Business, Management and Accounting · #Economic theories and models #Labor market dynamics and wage inequality #Financial Literacy, Pension, Retirement Analysis #Underemployment #Unemployment #Economics #Homogeneous #Product market #Product (mathematics) #Labour economics #Microeconomics #Work (physics) #Compensation (psychology) #Implicit contract theory #Risk aversion (psychology) #Expected utility hypothesis #Financial economics #Labor relations #Incentive #Macroeconomics
paper · doi:10.1086/260388
published in Journal of Political Economy 83(6), 1183-1202 (University of Chicago Press)
openalex publication_date 1975/12/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/31
This paper studies an industry with demand uncertainty which prompts risk-neutral firms to act both as employers and as insurers of homogeneous, risk-averse laborers. The resulting contractual arrangements turn out, in their simplest form, to be more likely to specify full employment the more of the following conditions prevail: small variability in product price, above-average economy-wide labor demand, highly risk-averse workers, small unemployment compensation, and highly competitive product market. Otherwise, it may be optimal for firms to lay off, by random choice, part of the work force during low states of demand.