Additional information is available for the following registered author(s):

• Sebastian Ioan Buhai
• C. N. Teulings

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 within 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 University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 05-9.

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Length: 43 pages
Date of creation: 20 Oct 2005
Date of revision: 03 Oct 2006
Handle: RePEc:hhs:aareco:2005_009

Note: Rev. version
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Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Phone: +45 89 486396
Fax: +45 8615 5175
Web page: http://www.asb.dk/departments/nat.aspx
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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:

• Paper
  • Buhai, Ioan Sebastian & Teulings, Coen N, 2006. "Tenure Profiles and Efficient Separation in a Stochastic Productivity Model," CEPR Discussion Papers 5577, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  • Sebastian Buhai & Coenraad N. Teulings, 2006. "Tenure Profiles and Efficient Separation in a Stochastic Productivity Model," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  • Sebastian Buhai & Coen N. Teulings, 2005. "Tenure Profiles and Efficient Separation in a Stochastic Productivity Model," Tinbergen Institute Discussion Papers 05-099/3, Tinbergen Institute, revised 03 Oct 2006. [Downloadable!]
  • Sebastian Buhai & Coen Teulings, 2006. "Tenure Profiles and Efficient Separation in a Stochastic Productivity Model," IZA Discussion Papers 1997, Institute for the Study of Labor (IZA). [Downloadable!]

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This page was last updated on 2009-11-22.