IS THE BEHAVIOR OF HOURS WORKED CONSISTENT WITH IMPLICIT CONTRACT THEORY

This paper examines the determinants of hours worked when employment relationships are influenced by risk-sharing considerations. The environment considered is an extension of the standard symmetric-information risk-sharing model that allows for the possibility of enforcement problems on the part of both the employer and the employee. We show that this class of risk-sharing model unambiguously predicts hours to be influenced by wages only through an income effect. Using data from the PSID, we find evidence in favor of this extended version of the risk-sharing model.