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Search and the Firm's Choice of the Optimal Labor Contract

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Author Info
Dimitri Paolini ()

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Abstract

This article studies the behavior of a firm searching to fill a vacancy. The main assumption is that the firm can offer two different kinds of contracts to the workers, either a short-term contract or a long-term one. The short-term contract acts as a probationary stage in which the firm can learn the worker's type. After this stage, the firm can propose a long- term contract to the worker or it can decide to look for another worker. We show that, if the short-term wage is fixed endogenously, for the firms can be optimal to start a working relationship with a short-term contract, but that this policy has a negative impact on unemployment and welfare. On the contrary, if this wage is fixed exogenously, this policy could be optimal also from welfare point of view.

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Publisher Info
Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200708.

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Date of creation: 2007
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Handle: RePEc:cns:cnscwp:200708

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Related research
Keywords: Search Temporary Employment Short-Term Wage.

Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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