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Tenure Profiles and Efficient Separation in a Stochastic Productivity Model

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  • Sebastian Buhai
  • Coenraad N. Teulings

Abstract

This paper provides a new way of analyzing tenure profiles in wages, by modelling simultaneously the evolution of wages and the distribution of tenures. We develop a theoretical model based on efficient bargaining, where both log outside wage and log wage in the current job follow a random walk, as found empirically. This setting allows the application of real option theory. We derive the efficient separation rule. The model fits the observed distribution of job tenures well. Since we observe outside wages only at job start and job separation, our empirical analysis of within job wage growth is based on expected wage growth conditional on the outside wages at both dates. Our modelling allows testing of the efficient bargaining hypothesis. The model is estimated on the PSID.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1688.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1688

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Related research

Keywords: random productivity growth; efficient bargaining; job tenure; inverse gaussian; wage-tenure profiles; option theory;

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References

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  1. Topel, Robert H & Ward, Michael P, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 439-79, May.
  2. Martin A. van der Ende & Coenraad N. Teulings, 2001. "A Structural Model of Tenure and Specific Investments," CESifo Working Paper Series 532, CESifo Group Munich.
  3. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
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Cited by:
  1. Buhai, Ioan Sebastian & Portela, Miguel & Teulings, Coen N & van Vuuren, Aico, 2008. "Returns to Tenure or Seniority?," CEPR Discussion Papers 6933, C.E.P.R. Discussion Papers.
  2. Coen Teulings, 2010. "How to Share Our Risks Efficiently? Principles for Optimal Social Insurance and Pension Provision," De Economist, Springer, vol. 158(1), pages 1-21, April.
  3. Prat, Julien, 2007. "The Rate of Learning-by-Doing: Estimates from a Search-Matching Model," IZA Discussion Papers 2780, Institute for the Study of Labor (IZA).
  4. Coen Teulings & Pieter A. Gautier, 2011. "Sorting and the output loss due to search frictions," 2011 Meeting Papers 169, Society for Economic Dynamics.

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