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Labor Contracts with Voluntary Quits

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  • Ito, Takatoshi

Abstract

This paper considers labor contracts between the risk-neutral firm and risk-averse workers with heterogeneous outside opportunities (alternative wages), which become known to the worker after a costly on-the-job search. In the case of a deterministic alternative wage, self-selection over a menu of contract wages would achieve the first-best contract. If the alternative wages are stochastic, the second-best contract emerges as a trade-off between productive efficiency and risk sharing. Workers who voluntarily search are fewer, and workers who search are less likely to quit. If the search effort is not monitored, even fewer workers search. Copyright 1988 by University of Chicago Press.

Suggested Citation

  • Ito, Takatoshi, 1988. "Labor Contracts with Voluntary Quits," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 100-131, January.
    • Handle: RePEc:ucp:jlabec:v:6:y:1988:i:1:p:100-131
    DOI: 10.1086/298177
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    Cited by:

    1. Robert Dur & Heiner Schmittdiel, 2019. "Paid to Quit," De Economist, Springer, vol. 167(4), pages 387-406, December.
    2. Wang, Yanguo & Jaenicke, Edward C., 2005. "Pooling, Separating, and Cream-Skimming In Relative-Performance Contracts," 2005 Annual meeting, July 24-27, Providence, RI 19522, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. 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.
    4. 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.

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