Temporary Layoffs with Incomplete Worker Attachment in Search Equilibrium
AbstractThis paper revisits the no-attachment assumption in job search models with random productivity fluctuations and Nash-bargaining. Both workers and firms value the option to remain in attachment: firms profit from a reduced hiring cost, while workers gain from a higher reservation wage when bargaining with a new employer. Ex-post differentiation of workers into attached and unattached unemployed produces endogenous binary wage dispersion. The decentralized equilibrium with a Hosios value of the bargaining power is no longer constrained efficient: when changing attachment workers impose a negative externality on their former employer originating from a loss of the recall option. This inefficiency tends to produce excessive job creation. The paper also investigates returns to job mobility in Germany and shows that being recalled to the previous employer as opposed to the new job is associated with about 8% lower probability of wage improvement.
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Bibliographic InfoPaper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2010-08.
Length: 36 pages
Date of creation: 11 Oct 2010
Date of revision:
Find related papers by JEL classification:
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
- M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-BEC-2010-10-23 (Business Economics)
- NEP-DGE-2010-10-23 (Dynamic General Equilibrium)
- NEP-LAB-2010-10-23 (Labour Economics)
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