Question

define the term and explain the context for its usage and why it is important.

Labor Contract

Answer 1

Labor contract is a contract between firm and workers about the work they are supposed to do, the number of working hours, wage rate and other terms and conditions.

It is very useful for both parties as if one party defaults, the other party can show it as a proof that they are bind it by the labor contract on which both party agreed.

The labor contract becomes very important for worker's point of view because it provides him information regarding his work profile, wage rate, working hours etc. It is very important at the time of inflation, because the wages are fixed in nominal terms but with inflation, the real wage falls. So, the labor contract also explains whether the wages are indexed with inflation rate or not. If they are indexed with inflation rate, then the worker's wage rate changes as per the inflation rate in the economy, otherwise it would not.

Also, the labor contract shows the working hours that a firm expects from the labor. If the firm is asking the worker to spend more time than the mentioned time in labor contract, the worker can use the labor contract as a proof and take a legal action against him.

So, a labor contract is a kind of mutual agreement between both parties, workers and firms who negotiates on some points and then later on fixed them on the labor contract. Also, both parties are abide to follow the labor contract which is signed by them.