published in: Journal of Labor Economics, 2005, 23(2), 341-372
In many countries, an expired labor contract is automatically extended during the often
protracted delay before the new contract is signed. Our theoretical model focuses on
macroeconomic factors in explaining the delay. It emphasizes the importance of the realized
nominal and real shocks, and of the levels of nominal and real uncertainty. The model is
tested using Israeli collective wage agreements where long delays are frequent. The
empirical findings strongly support the theoretical model. Thus, nominal uncertainty is found
to increase the delay, and real uncertainty to decrease the delay, but less in the public than in
the private sector.
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