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Worker Mobility in a Search Model with Adverse Selection

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  • Carlos Carrillo-Tudela

    (University of Essex)

  • Leo Kaas

    (University of Konstanz)

Abstract

We analyze the effects of adverse selection on worker turnover and wage dynamics in a frictional labor market. We consider a model of on-the-job search where firms offer promotion wage contracts to workers of different ability, which is unknown to firms at the hiring stage. 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, promoting high-ability workers only. Low-ability workers have higher turnover rates and are more often employed in low-wage firms. The model replicates the negative relationship between job-to-job transitions and wages observed in the U.S. labor market.

Suggested Citation

  • Carlos Carrillo-Tudela & Leo Kaas, 2015. "Worker Mobility in a Search Model with Adverse Selection," Working Papers 2015-40, Peruvian Economic Association.
  • Handle: RePEc:apc:wpaper:2015-040
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    Cited by:

    1. Kunio Tsuyuhara, 2016. "Dynamic Contracts With Worker Mobility Via Directed On‐The‐Job Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(4), pages 1405-1424, November.
    2. Papageorgiou, Theodore, 2018. "Large firms and within firm occupational reallocation," Journal of Economic Theory, Elsevier, vol. 174(C), pages 184-223.
    3. Hermann Gartner & Christian Holzner, 2015. "Wage Posting as a Positive Selection Device: Theory and Empirical Evidence," CESifo Working Paper Series 5494, CESifo.
    4. Carlos Carrillo-Tudela & Eric Smith, 2017. "Search Capital," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 191-211, January.
    5. Rao, Neel, 2016. "Asymmetric information and search frictions: A neutrality result," Economics Letters, Elsevier, vol. 147(C), pages 138-141.
    6. Yu Chen, 2022. "A Directed Search Model of Crowding Out," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 308-340, January.

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    More about this item

    Keywords

    Adverse Selection; On-the-job search; Worker mobility; Wage dynamics;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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