%0 Report
        %A Altmann, Steffen
%A Falk, Armin
%A Huffman, David B.
        %T Implicit Contracts, Unemployment, and Labor Market Segmentation
        %D 2010
        %8 2010 Jun
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 5001
        %U https://www.iza.org/publications/dp5001
        %X We analyze the impact of imperfect contract enforcement on the emergence of unemployment. In an experimental labor market where trading parties can form long-term employment relationships, we compare a work environment where effort is observable, but not verifiable to a situation where explicit contracts are feasible. Our main result shows that unemployment is much higher when third-party contract enforcement is absent. Unemployment is involuntary, being caused by firms' employment and contracting policy. Moreover, we show that implicit contracting can lead to a segmentation of the labor market. Firms in both segments earn similar profits, but workers in the secondary sector face much less favorable conditions than their counterparts in primary-sector jobs.
        %K incentives
%K fairness
%K unemployment
%K dual labor markets
%K implicit contracts