In his paper, Implicit Contracts and Underemployment Equilibria, Costas Azariadis discusses state-contingent contracts. Before signing a contract and before observing which state of the world will obtain, a worker chooses between firms based on the state-contingent wage and employment contracts they offer. The main result of the paper is the discovery that the market with risk-averse workers may in equilibrium produce contracts with involuntary unemployment in some states. On the face of it, equilibrium unemployment contracts seem paradoxical. Why should risk-averse workers choose a contract that gives them positive probability of zero labor income when full-employment contracts are feasible? A proposition (eq. [1 1]) is given under which there is an unemployment state for a given equilibrium contract. In the paper this proposition is interpreted as follows: Forfull-employment contracts to be suboptimal, it suffices, then, that there exist a state of nature in which thefully employed wage rate exceeds the sum of the marginal product value offully employed labor plus the marginal underemployment premium (p. 1 191). We see in theorem 1 that this is a necessary condition as well. Equation (11) has an immediate corollary, a weaker condition, which can be interpreted as follows: For full-employment contracts to be suboptimal it is necessary that there exist a state of nature in which the reservation wage at which workers are indifferent between work and leisure exceeds the marginal product value of fully employed labor. In the following Azariadis's notation is used. The state-contingent price in state s is p(s), f'(m*) is the marginal product of fully employed labor, u(y) is the utility of labor income given property income and the leisure associated with working, K is the utility of not working given property income and unemployment compensation, k is the reservation wage rate which makes workers indifferent between work and leisure u'(K), and O (Wy) is the marginal underemployment premium.