Transaction costs and the employment contract in the us economy

W. Bentley MacLeod, Daniel Parent

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


The purpose of this article is to use transaction cost economics (as in Williamson, O.E., M.L. Wachter, and J.E. Harris. 1975. "Understanding the Employment Relation: The Analysis of Idiosyncratic Exchange," 6(1) Bell Journal of Economics 250-78; Williamson, O.E. 1981. "The Economics of Organization: The Transaction Cost Approach," 87(3) American Journal of Sociology 548-77) to explore the relationship between job characteristics and observed employment contracts. Transaction cost considerations lead to jobs characterized by either normal or complex exchange. This in turn implies two contracting modes: contingent pay (fixed wage or piece-rate/commission contract) or noncontingent pay (salary with possibly a bonus). We show empirically that observed job characteristics, as measured by the Dictionary of Occupational Titles, can explain the contract form observed in the Panel Study on Income Dynamics. Second, we discuss the implications of contract form for wages and mobility, and show that noncontingent pay jobs have more able workers in more durable relationships. (JEL J31, J33, J41, K31).

Original languageEnglish (US)
Pages (from-to)i40-i76
JournalJournal of Law, Economics, and Organization
StatePublished - 2015
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management
  • Law


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