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Wage/Tenure Contracts with Heterogeneous Firms

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  • Burdett, K
  • Coles, M

Abstract

This paper investigates equilibria in a labor market where heterogeneous firms post wage/tenure contracts and risk-averse workers, both employed and unemployed, search for new job opportunities. Different firms, even those with the same productivity, typically offer different contracts. Equilibrium finds workers never quit from higher productivity firms to lower productivity firms, but turnover is inefficiently low as employees with large tenures at low productivity firms may reject job offers from more productive firms. A worker who quits to a more productive firm may take a wage cut in anticipation of better wage promotion prospects. Wages within a firm might also increase by a discrete amount at the end of an initial 'probationary' spell.

Suggested Citation

  • Burdett, K & Coles, M, 2007. "Wage/Tenure Contracts with Heterogeneous Firms," Economics Discussion Papers 4930, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:4930
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    Cited by:

    1. Cynthia Doniger, 2023. "Wage Dispersion with Heterogeneous Wage Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 138-160, December.
    2. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2016. "Wage Inequality: A Structural Decomposition," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 20-37, January.
    3. Eric Smith & Carlos Carrillo Tudela, 2007. "Wage Dispersion and Wage Dynamics Within and Across Firms," 2007 Meeting Papers 615, Society for Economic Dynamics.
    4. Ge, Teng & Wu, Tao, 2020. "Search, migration, and social connections: Solving the migration puzzle to Beijing," China Economic Review, Elsevier, vol. 62(C).
    5. Amanda Gosling & Mathan Satchi, 2014. "Separation incentives and minimum wages in a job-posting search framework," Studies in Economics 1401, School of Economics, University of Kent.
    6. Moscarini, Giuseppe & Wright, Randall, 2010. "Introduction to Search Theory and Applications," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1319-1324, July.
    7. Xiao, Chaoqun & Tang, Wansheng & Zhao, Ruiqing & Zhou, Chi, 2013. "Equilibrium search with heterogeneous firms, workers and endogenous human capital," MPRA Paper 52136, University Library of Munich, Germany.
    8. Rasmus Lentz, 2014. "Optimal Employment Contracts with Hidden Search," NBER Working Papers 19988, National Bureau of Economic Research, Inc.
    9. Joel Rodrigue & Kunio Tsuyuhara, 2018. "On‐the‐job‐search, wage dispersion and trade liberalization," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(2), pages 452-482, May.
    10. Jake Bradley & Axel Gottfries, 2021. "A job ladder model with stochastic employment opportunities," Quantitative Economics, Econometric Society, vol. 12(4), pages 1399-1430, November.
    11. Günter Strobl & Edward D. Van Wesep, 2013. "Publicizing Performance," Management Science, INFORMS, vol. 59(4), pages 918-932, April.
    12. Fang, Zheng & Sakellariou, Chris, 2015. "Discrimination or Unobserved Differences in Characteristics?-An Empirical Study on Wage Inequality," MPRA Paper 68568, University Library of Munich, Germany.
    13. 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.

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