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Tenure Profiles and Efficient Separation in a Stochastic Productivity Model

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Author Info
Sebastian Buhai () (Erasmus Universiteit Rotterdam, and Aarhus School of Business)
Coen N. Teulings () (Universiteit van Amsterdam)

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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. Starting point is the observation that within-job log wages for an individual can be described by random walk. 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. This setting allows the application of real option theory. We derive the efficient separation rule, which stipulates that workers switch jobs when the difference between the outside wage and the wage in the current job reaches a threshold. The model fits well the observed distribution of job tenures. Since we observe outside wages only at job start and job separation, our empirical analysis of with 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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Publisher Info
Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-099/3.

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Date of creation: 21 Oct 2005
Date of revision: 03 Oct 2006
Handle: RePEc:dgr:uvatin:20050099

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Web page: http://www.tinbergen.nl/

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Related research
Keywords: random productivity growth efficient bargaining job tenure wage growth wage-tenure profiles option theory

Other versions of this item:

Find related papers by JEL classification:
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs

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References listed on IDEAS
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  1. Coen N. Teulings & Martin A. van der Ende, 2000. "A Structural Model of Tenure and Specific Investments," Tinbergen Institute Discussion Papers 00-009/3, Tinbergen Institute, revised 30 Nov 2002. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!] (restricted)
    Other versions:
  3. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-76, February. [Downloadable!] (restricted)
    Other versions:
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