Arthur Okun - Inventor of the expression "The Invisible Handshake"

We will spend some more time tomorrow talking about implicit contracts.  Your homework gives you one idea - about how such contracts can be self-enforcing.  But it really doesn't tell you much about the nature of the agreement.  The paper linked below (you have access to this if you are on the campus network) talks about implicit contracts between a firm and its employees.  It explains why wages are "rigid" and how the agreement offers a kind of co-insurance.

The Invisible Handshake and the Inflationary Process on JSTOR via kwout