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Implicit Labor Contracts to Explain Turnover

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  • Berkovitch, Elazar

Abstract

Aggregate data exhibit procyclical movement in the rate of turnover. However, existing models of turnover have been unable to explain this phenomenon. In this model the author generates turnover as an outcome of a second-best wage contract when there is asymmetry of information about workers' mobility costs. A wage contract that insures the "bad" ("unlucky") workers results in "good" ("lucky") workers earning less than their marginal productivity. Therefore, good workers with low mobility costs leave the firm for the spot market wage. This, combined with an aggregate shock, results in a procyclical rate of turnover. Copyright 1986 by University of Chicago Press.

Suggested Citation

  • Berkovitch, Elazar, 1986. "Implicit Labor Contracts to Explain Turnover," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 341-354, July.
    • Handle: RePEc:ucp:jlabec:v:4:y:1986:i:3:p:341-54
    DOI: 10.1086/298114
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    Cited by:

    1. Anton Miglo, 2009. "Earnings‐Based Compensation Contracts Under Asymmetric Information," Manchester School, University of Manchester, vol. 77(2), pages 225-243, March.
    2. Lam, Kit-Chun & Liu, Pak-Wai & Wong, Yue-Chim, 1995. "Wage structure when wage offers are private," Labour Economics, Elsevier, vol. 2(1), pages 19-32, March.
    3. Lam, Kit-Chun & Liu, Pak-Wai, 2000. "Verifiable wage offers and recontracting: effect on wage and consumption profiles," Labour Economics, Elsevier, vol. 7(4), pages 449-462, July.
    4. Anton Miglo, 2006. "Optimal compensation contracts under asymmetric information concerning expected earnings," Working Papers 0613, University of Guelph, Department of Economics and Finance.

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