Question

Workers and firms often enter into contracts that fix prices or wages, sometimes for years at a time. If the price level turns out to be higher or lower than was expected when the contract was signed, one party to the contract will lose out. Briefly explain why, despite knowing this, workers and firms still sign long-term contracts.

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Answer 1

The long term contracts will reduce the level of risks in the labour market. The fixed term contracts come with a termination date. The contract contain provision that a notice given to terminate employment than original termination date. The hiring of the workers in short run, will tried to maintain the short term gaps in staffing. The long term contracts provide benefit to the company from candidate with expert knowledge for particular project. This long term contracts can increase the labour and putting employees in probationary period to evaluate the work. Maternity/paternity leave and secondments can be covered effectively and efficiently under this long term. There is stability can be ensured through this contracts. It also ensures effective forecasting in the labour market. This will increase the return on investment. The longer term agreements will help to recover the cost of equipments purchases and allows effective policies. This will helps to afford more knowledge about facility and development programmes. There is a higher level insurance of the security of workers, on the basis of wage, incentives, existence in the labour market. Longer term contracts allow to suggesting and help to implement the facility which can be operate in sustainable manner. This will also reduce the operating cost.