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Wage-Experience Contracts and Employment Status

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Author Info
Carlos Carrillo Tudela ()

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Abstract

The objective of this paper is to study equilibrium in a labour market in which identical firms post wage-contracts and ex-ante identical workers search on the job. The main novelty of this paper is to generate dispersion in contract offers by allowing firms to condition their offers on workers' initial experience and employment status although these characteristics do not affect productivity. In this context I show that changes in firms' information set at the moment of recruiting can have strong effects on wage dispersion and turnover without changing the agents' payoffs. I construct an equilibrium in which firms compete in promotion contracts. Employed and more experience workers are offered better contracts with shorter time-to-promotion periods. This implies contract offers are disperse within and between experience levels. The earnings distribution within the firm is then such that workers who have acquired more "outside" firm experience and more tenure are higher in the earnings scale. This generates workers cohort effects within a firm that depend on the level of experience at which they where hired.

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File URL: http://www.essex.ac.uk/economics/discussion-papers/papers-text/dp600.pdf
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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 600.

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Date of creation: 03 Oct 2005
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Handle: RePEc:esx:essedp:600

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  1. 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. [Downloadable!] (restricted)
  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. [Downloadable!]
  3. van den Berg, Gerard J, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 255-77, April. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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  5. Carlos Carrillo-Tudela, 2005. "Wage-Tenure Contracts, Experience and Employment Status," 2005 Meeting Papers 110, Society for Economic Dynamics. [Downloadable!]
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  6. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September. [Downloadable!] (restricted)
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  7. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November. [Downloadable!] (restricted)
  8. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," Review of Economic Studies, Blackwell Publishing, vol. 71(2), pages 535-551, 04. [Downloadable!] (restricted)
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  9. Burda, Michael C. & Mertens, Antje, 2001. "Estimating wage losses of displaced workers in Germany," Labour Economics, Elsevier, vol. 8(1), pages 15-41, January. [Downloadable!] (restricted)
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  10. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, 09. [Downloadable!] (restricted)
  11. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November. [Downloadable!] (restricted)
  12. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
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