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Wage Dispersion and Labour Turnover with Adverse Selection

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  • Carlos Carrillo-Tudela

    ()
    (Department of Economics, University of Essex, United Kingdom)

  • Leo Kaas

    ()
    (Department of Economics, University of Konstanz, Germany)

Abstract

We consider a model of on-the-job search where firms offer long-term wage contracts to workers of different ability. Firms do not observe worker ability upon hiring but learn it gradually over time. With sufficiently strong information frictions, low-wage firms offer separating contracts and hire all types of workers in equilibrium, whereas high-wage firms offer pooling contracts designed to retain high-ability workers only. Low-ability workers have higher turnover rates, they are more often employed in low-wage firms and face an earnings distribution with a higher frictional component. Furthermore, positive sorting obtains in equilibrium.

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Bibliographic Info

Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-29.

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Length: 42 pages
Date of creation: 16 Aug 2011
Date of revision:
Handle: RePEc:knz:dpteco:1129

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Keywords: Adverse Selection; On-the-job Search; Wage Dispersion; Sorting;

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