PLANNING, STOCHASTIC SHOCKS AND LABOR CONTRACTS OF FEMALE WORKERS ANDTHEIR WELFARE IMPLICATIONS

In this paper we analyse labour contracts for female workers when ther e are planned shifts or stochastic shocks to their leisure preference which arise as a result of planned or unplanned pregnancy. It will be shown that, when female workers plan their pregnancy, contract firms c an induce self-selection among workers through a contract that stipula tes a wage profile steeper than the spot wage profile so that self-sel ected workers who accept the contract will not quit. Even though infor mation on shifts in leisure preference is asymmetric, first-best effic iency can be achieved through self-selection. When female workers do n ot plan childbirths, however, self-selection contracts are not possibl e. When the stochastic shocks are realized, there will be quits. Plann ing is Pareto-superior to no planning. At equilibrium workers will be allocated optimally; workers who have low marginal value of home time will join contract firms and make specific investments, while those wh o have high marginal value will seek employment in the Walrasian marke t and make no specific investments. Some implications of these results are also discussed in the paper.