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Wage-Tenure Contracts, Experience and Employment Status

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  • Carlos Carrillo Tudela

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Abstract

The objective of this paper is to study equilibrium in a labour market with search frictions a la Burdett and Mortensen (1998). Identical firms post wage-contracts and ex-ante identical workers search for a job while unemployed and for a better one while employed. Although this situation has been analysed before, Stevens (2004) and Burdett and Coles (2003), the main novelty of this paper is to allow firms to offer contracts according to the worker's initial experience and employment status. We construct an equilibrium in which firms compete in "promotion" contracts and offer unemployed workers longer "probation" periods than to employed workers. An interesting feature of this equilibrium is that outside offers become more generous with experience. This generates workers cohort effects within a firm that depend on the level of experience at which they where hired. The distribution of earnings within the firm is then such that workers who have acquired more "outside" firm experience and more tenure are higher in the earnings scale.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 585.

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Date of creation: 09 Nov 2004
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Handle: RePEc:esx:essedp:585

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  1. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 535-551, 04.
  2. Carlos Carrillo Tudela, 2004. "Recruitment Policy When Firms Observe Workers' Employment Status: an Equilibrium Search Approach," Economics Discussion Papers 584, University of Essex, Department of Economics.
  3. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 921-55, November.
  4. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 703-36, December.
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Cited by:
  1. Carlos Carrillo Tudela, 2005. "Wage-Experience Contracts and Employment Status," Economics Discussion Papers 600, University of Essex, Department of Economics.

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