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Inefficient Worker Turnover

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Author Info
Nicolas L. Jacquet () (School of Economics, Singapore Management University)
Abstract

This paper considers the efficiency properties of risk-neutral workers’ mobility decisions in an equilibrium model with search frictions, but no search externalities, when the rent accruing to a match is split through bargaining. Matches are ex ante homogeneous and their true productivity is learnt after the match is formed. It is shown that the efficiency of worker turnover depends on contract enforceability, and that in the absence of complete enforceability the equilibrium fails to be efficient. This is because without complete enforceability firms cannot credibly offer workers contracts that will guarantee them the entire future of all potential future matches.

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Publisher Info
Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 17-2007.

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Length: 31 pages
Date of creation: Sep 2007
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:17-2007

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Related research
Keywords: On-the-Job Search; Learning; Bargaining; Contracts; Enforceability;

Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies

This paper has been announced in the following NEP Reports:

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  1. Pissarides, C A, 1984. "Efficient Job Rejection," Economic Journal, Royal Economic Society, vol. 94(376a), pages 97-108, Supplemen. [Downloadable!] (restricted)
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  3. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May. [Downloadable!] (restricted)
  4. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
  5. Michael Pries & Richard Rogerson, 2005. "Hiring Policies, Labor Market Institutions, and Labor Market Flows," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 811-839, August.
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    Other versions:
  7. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
    Other versions:
  8. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December. [Downloadable!] (restricted)
  9. Eva Nagypal, 2007. "Learning by Doing vs. Learning About Match Quality: Can We Tell Them Apart?," Review of Economic Studies, Blackwell Publishing, vol. 74(2), pages 537-566, 04. [Downloadable!] (restricted)
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    Other versions:
  11. 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)
  12. 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)
    Other versions:
  13. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 217-27, April. [Downloadable!] (restricted)
  14. Malcomson, James M., 1999. "Individual employment contracts," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 35, pages 2291-2372 Elsevier. [Downloadable!] (restricted)
    Other versions:
  15. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, 09. [Downloadable!] (restricted)
  16. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03. [Downloadable!] (restricted)
  17. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2003. "Wage bargaining with on-the-job search : theory and evidence," Research Unit Working Papers 0212, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
    Other versions:
  18. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October. [Downloadable!] (restricted)
    Other versions:
  19. Felli, Leonardo & Harris, Christopher, 1996. "Learning, Wage Dynamics, and Firm-Specific Human Capital," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 838-68, August. [Downloadable!] (restricted)
  20. Dale T. Mortensen, 1978. "Specific Capital and Labor Turnover," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 572-586, Autumn. [Downloadable!] (restricted)
  21. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
    Other versions:
  22. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
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