In the Employment mechanism, the parties
negotiate, on a once-and-for-all basis, a wage and
a large set of services to be supplied on demand.
Examples of services covered could be all the
many things a secretary or a superintendent may
be asked to do. Since a lot is covered by the agreement,
the initial bargaining costs may be large, but
in equilibrium, no further costs are incurred, while
gains from trade are realized in every period. If
one of the parties initiates a later renegotiation of
the wage, bargaining costs are incurred again and
there is a corresponding loss of efficiency.
