Efficient Contracts with Costly Adjustment : Short-Run Employment Determination for Airline Mechanics

This paper presents an empirical analysis of firm-specificemployment and wage outcomes for mechanics in the domestic airlineindustry. A dynamic contracting model is presented that incorporatesboth costly employment adjustment and potential gaps between contractwage rates and the opportunity value of workers' time. The model givesa useful description of the employment-output linkage in the data, butis less successful in capturing the dynamic relation between employment,contract wage rates, and wage rates outside the airline industry