Job security and long-term investment: an experimental analysis

Article


Charness, G., Cobo-Reyes, R., Jimenez Jimenez, N., Lacomba, J. and Lagos, F. 2017. Job security and long-term investment: an experimental analysis. European Economic Review. 95, pp. 195-214. https://doi.org/10.1016/j.euroecorev.2017.03.014
TypeArticle
TitleJob security and long-term investment: an experimental analysis
AuthorsCharness, G., Cobo-Reyes, R., Jimenez Jimenez, N., Lacomba, J. and Lagos, F.
Abstract

We investigate an experimental labor market setting in which we introduce the novel aspect that workers have the chance of investing money in a long-term project in order to increase their income. We find a strong relationship between what happens inside the labor market (worker's performance) and what happens outside the labor market (long-term investment). Contrary to the theoretical predictions with selfish preferences, we find that the mere presence of long-term projects acts as an effort-enforcement device; this effect seems to be driven by an increase in long-term employment relationships. In the other direction, long-term labor relationships seem to provide a safer environment for undertaking successful long-term projects. This article also considers three different types of experimental labor contracts. We find that performance-based dismissal barriers, whereby firms are required to retain workers if they have satisfied the effort level required by firms, lead to more long-term employment relationships and higher overall productivity. As theory predicts, the presence of renewable dismissal barriers makes it likely that workers will provide the desired effort level. Firms appear to correctly anticipate this, leading to greater social efficiency.

LanguageEnglish
PublisherElsevier
JournalEuropean Economic Review
ISSN0014-2921
Publication dates
Print01 Jun 2017
Online14 Apr 2017
Publication process dates
Deposited20 Nov 2018
Accepted17 Mar 2017
Output statusPublished
Accepted author manuscript
License
Copyright Statement

© 2017 Published by Elsevier B.V. This author's accepted manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Digital Object Identifier (DOI)https://doi.org/10.1016/j.euroecorev.2017.03.014
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