Wage-Tenure Contracts, Experience and Employment Status
AbstractThe 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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Bibliographic InfoPaper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 585.
Date of creation: 09 Nov 2004
Date of revision:
Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
Other versions of this item:
- Carlos Carrillo-Tudela, 2005. "Wage-Tenure Contracts, Experience and Employment Status," 2005 Meeting Papers 110, Society for Economic Dynamics.
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-11-22 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Stevens, M., 2000. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Stratgies for Recruitment and Retention," Economics Papers 2000-w10, Economics Group, Nuffield College, University of Oxford.
- 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.
- 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.
- 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.
- Carlos Carrillo Tudela, 2005. "Wage-Experience Contracts and Employment Status," Economics Discussion Papers 600, University of Essex, Department of Economics.
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