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Worker-firm relational contracts in the time of shutdowns: experimental evidence.

ABSTRACT: Exogeneous disruptions in labor demand have become more frequent in recent times. The COVID-19 pandemic has resulted in millions of workers being repeatedly laid off and rehired according to local public health conditions. This may be bad news for market efficiency. Typical employment relations-which resemble non-enforceable (implicit) contracts-rely on reciprocity (Brown et al. in Econometrica 72:747-780, 2004), and hence could be harmed when workers' efforts no longer guarantee reemployment in the next period. In this paper we extend the BFF paradigm to include a per-period probability (0%, 10%, 50%) of publicly observable "shutdown", where a specific firm cannot contract with any workers for several periods. A Perfect Bayesian Equilibrium exists in which these shutdowns destabilize relationships, but do not harm efficiency. Our experiment shows that, remarkably, market efficiency can be maintained even with very frequent stochastic shutdowns. However, the dynamic of relational contracts changes from one where a worker finds stable employment to one where she juggles multiple employers, laying the burden of maintaining productivity upon workers and worsening worker-side inequality.

Supplementary information

The online version contains supplementary material available at (10.1007/s10683-020-09697-1).

SUBMITTER: Linardi S

PROVIDER: S-EPMC7883973 | biostudies-literature | 2021 Feb

REPOSITORIES: biostudies-literature

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Worker-firm relational contracts in the time of shutdowns: experimental evidence.

Linardi Sera S Camerer Colin C

Experimental economics 20210215 4

Exogeneous disruptions in labor demand have become more frequent in recent times. The COVID-19 pandemic has resulted in millions of workers being repeatedly laid off and rehired according to local public health conditions. This may be bad news for market efficiency. Typical employment relations-which resemble non-enforceable (implicit) contracts-rely on reciprocity (Brown et al. in Econometrica 72:747-780, 2004), and hence could be harmed when workers' efforts no longer guarantee reemployment in ...[more]

PMID: 33613086

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Project description:This study applies the theory of planned behaviors to evaluate economic outcomes resulting from planned innovation and dynamic entrepreneurship of Vietnamese firms. The analysis uses data on Vietnamese small and medium manufacturing firms from surveys conducted by United Nations University World Institute for Development Economics Research (UNU-WIDER) during 2005-2015. Employing various estimation techniques including normal standard one-side regressions (fixed effect models, panel robust model, and Pds-lasso) and two-side structural two-stage models (extended regression model, treatment effect model, and IV-Lasso), we analyze the impacts of innovation activities on firm profitability in connection to the role of dynamic entrepreneurship and planned innovation. We measure planned innovation by the interaction between intention to innovate and firm innovation activities. The study shows that planned innovation is associated with higher profitability for firms. This holds true for all three innovation activities including introduction of a new product, introduction of a new production process and improvements to existing products/processes. In light of the theory of planned behaviors, entrepreneurial intentions embedded in planned innovation can underlie a comprehensive plan and action that drives the innovation process. The findings suggest that for small and medium enterprises (SMEs) to thrive, willingness to pursue innovation by the firm owners is key to success as the intention to innovate will enable firms to gain a planning advantage. This advantage leads to a better resource allocation within the firms, shaping more effective strategies to implement a planned innovation. Overall, the study provides an important implication for the introduction of support schemes that promote innovation for SMEs in Vietnam. Any support schemes, introduced either by the public or private sector to target SMEs, should be engaged with the group of dynamic entrepreneurs who have intentions to innovate to warrant a higher chance of success.

Dataset Information

Worker-firm relational contracts in the time of shutdowns: experimental evidence.

Supplementary information

Publications

Worker-firm relational contracts in the time of shutdowns: experimental evidence.

Similar Datasets

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