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Wage-Tenure Contracts, Experience and Employment Status

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  • Carrillo-Tudela, C

Abstract

The objective of this paper is to study equilibrium in a labour market with search frictions a la Burdett and Mortensen (1998). Identical firms post wage-contracts and ex-ante identical workers search for a job while unemployed and for a better one while employed. Although this situation has been analysed before, Stevens (2004) and Burdett and Coles (2003), the main novelty of this paper is to allow firms to offer contracts according to the worker's initial experience and employment status. We construct an equilibrium in which firms compete in 'promotion' contracts and offer unemployed workers longer 'probation' periods than to employed workers. An interesting feature of this equilibrium is that outside offers become more generous with experience. This generates workers cohort effects within a firm that depend on the level of experience at which they where hired. The distribution of earnings within the firm is then such that workers who have acquired more 'outside' firm experience and more tenure are higher in the earnings scale.

Suggested Citation

  • Carrillo-Tudela, C, 2004. "Wage-Tenure Contracts, Experience and Employment Status," Economics Discussion Papers 2735, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:2735
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    References listed on IDEAS

    as
    1. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    2. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 535-551.
    3. Gerard J. van den Berg & Geert Ridder, 1998. "An Empirical Equilibrium Search Model of the Labor Market," Econometrica, Econometric Society, vol. 66(5), pages 1183-1222, September.
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    Cited by:

    1. Carlos Carrillo-Tudela, 2009. "An Equilibrium Search Model with Optimal Wage-Experience Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 108-128, January.
    2. Carrillo-Tudela, C, 2005. "Wage-Experience Contracts and Employment Status," Economics Discussion Papers 2733, University of Essex, Department of Economics.

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    More about this item

    Keywords

    J63; J64; J41; Search; experience; contracts; promotion; dual labour markets; discrimination.;
    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
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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