Open Access Open Access  Restricted Access Subscription Access

Wage Structure in Long-Term Employment Contracts with Imperfect Capital Markets and Asymmetric Information

Mak B. Arvin

Abstract


Lack of access to borrowing facilities has important implications for wage contracts, especially in recent years when we have witnessed a global financial meltdown with many liquidity-constrained workers unable to borrow from financial institutions. In this paper, we ask whether the workers’ own firm is prepared to lend them money through wages that do not reflect their contemporaneous worth at the firm. We show that asymmetric information about workers’ outside job opportunities will inhibit the firm from providing its employees with a full banking service. Some lending by the firm to its workers, however, does take place – the level of which depends on workers’ degree of risk aversion.

Keywords


borrowing constraint, lending, employment contracts, structure of earnings, asymmetric information

Full Text:

PDF


Disclaimer/Regarding indexing issue:

We have provided the online access of all issues and papers to the indexing agencies (as given on journal web site). It’s depend on indexing agencies when, how and what manner they can index or not. Hence, we like to inform that on the basis of earlier indexing, we can’t predict the today or future indexing policy of third party (i.e. indexing agencies) as they have right to discontinue any journal at any time without prior information to the journal. So, please neither sends any question nor expects any answer from us on the behalf of third party i.e. indexing agencies.Hence, we will not issue any certificate or letter for indexing issue. Our role is just to provide the online access to them. So we do properly this and one can visit indexing agencies website to get the authentic information.