Advanced Search
MyIDEAS: Login to save this paper or follow this series

On Employment Contracts with Heterogeneous Workers and Endogenous On-the-job Search

Contents:

Author Info

  • Francis Kiraly

    (Department of Economics Keele University,)

Registered author(s):

    Abstract

    This paper considers an equilibrium search model with on-the-job search where firms set wages.We look at optimal employment contracts when workers are heterogeneous and choose search intensity. Firms may want to retain their good workers by matching any offers that these employees may receive from other firms. However, if workers are able to vary their search intensity, this ‘‘offer-matching’’ policy leads to a moral hazard problem. Workers are induced to search more intensively, which is costly. Assuming that firms can commit to retain and employ all workers, irrespective of their ability, we establish conditions under which it is optimal to do so. The idea is that firms can create an adverse selection situation that reduces outside offers from raiding firms. We describe equilibria where all firms use these so-called ‘‘pooling’’ contracts. The intuition is that the gains from reducing the returns to search may outweigh the costs of retaining all workers, including the low ability ones. We also derive conditions under which only ‘‘separating’’ contracts are offered and firms only retain the high ability workers. Some equilibria involve contracts where an ‘‘efficiency wage’’ is paid that again deters workers from actively looking for outside offers. Finally, we show that for a range of parameter values multiple equilibria are also possible.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0304.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2003/04.

    as in new window
    Length: 38 pages
    Date of creation: Sep 2003
    Date of revision: Jan 2004
    Handle: RePEc:kee:kerpuk:2003/04

    Note: Revised (January 2004) version of my (September 2003) paper entitled Layoffs and Promotions with Heterogeneous Workers and On-the-job Search.
    Contact details of provider:
    Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
    Phone: +44 (0)1782 584581
    Fax: +44 (0)1782 717577
    Email:
    Web page: http://www.keele.ac.uk/depts/ec/cer/
    More information through EDIRC

    Order Information:
    Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
    Email:
    Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

    Related research

    Keywords: labour market frictions; labour contracts; turnover; search effort; moral hazard and adverse selection.;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:kee:kerpuk:2003/04. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martin E. Diedrich) The email address of this maintainer does not seem to be valid anymore. Please ask Martin E. Diedrich to update the entry or send us the correct address.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.