Effects of Employment Contract Duration and Wage Determination on Employment Fluctuations

This study investigates the effects of employment contract duration and wage determination on employment fluctuations using a dynamic model with long- and short-term employment contracts. The results demonstrate that fluctuations in short-term employment are smaller than those in long-term employment when wages are fixed during the contract periods for both types. Moreover, a higher quit rate and shorter employment period lead to reduced employment fluctuations amid shocks in productivity. However, fluctuations in short-term employment are more significant than in long-term employment when wages of long-term contracts can be changed each period, but that of short-term contracts is fixed during the contract periods without adjustment costs.