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Job Security as an Endogenous Job Characteristic

  • Jahn, Elke J.


    (Department of Economics, Aarhus School of Business)

  • Wagner, Thomas


    (University of Applied Sciences)

This paper develops a hedonic model of job security (JS). Workers with heterogeneous JS-preferences pay the hedonic price for JS to employers, who incur labor-hoarding costs from supplying JS. In contrast to the Wage-Bill Argument, equilibrium unemployment is strictly positive, as workers with weak JS-preferences trade JS for higher wages. The relation between optimal job insecurity and the perceived dismissal probability is hump-shaped. If firms observe demand, but workers do not, separation is not contractible and firms dismiss workers at-will. Although the workers are risk-averse, they respond to the one-sided private information by trading wage-risk for a higher JS. With two-sided private information, even JS-neutral workers pay the price for a JS guarantee, if their risk premium associated with the wage-replacement risk is larger than the social net loss from production.

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Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 08-6.

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Length: 50 pages
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:hhs:aareco:2008_006
Contact details of provider: Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Phone: +45 89 486396
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  1. Gottschalk, Peter & Moffitt, Robert, 1999. "Changes in Job Instability and Insecurity Using Monthly Survey Data," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages S91-126, October.
  2. Philip Oreopoulos & Marianne Page & Ann Huff Stevens, 2008. "The Intergenerational Effects of Worker Displacement," Journal of Labor Economics, University of Chicago Press, vol. 26(3), pages 455-483, 07.
  3. Miles Kimball & Philippe Weil, 1992. "Precautionary Saving and Consumption Smoothing Across Time and Possibilities," Sciences Po publications 3976, Sciences Po.
  4. Kahn, Charles M, 1985. "Optimal Severance Pay with Incomplete Information," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 435-51, June.
  5. repec:tpr:qjecon:v:112:y:1997:i:3:p:873-911 is not listed on IDEAS
  6. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1992. "Earnings losses of displaced workers," Working Paper Series, Macroeconomic Issues 92-28, Federal Reserve Bank of Chicago.
  7. Alois Stutzer & Rafael Lalive, 2004. "The Role of Social Work Norms in Job Searching and Subjective Well-Being," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 696-719, 06.
  8. Patricia Tracy Jones & Stephen Nickell & Glenda Quintini, 2000. "A Picture of Job Insecurity Facing British Men," CEP Discussion Papers dp0479, Centre for Economic Performance, LSE.
  9. Valletta, Robert G, 1999. "Declining Job Security," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages S170-97, October.
  10. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  11. Hart, Oliver D, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 3-35, January.
  12. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-75, September.
  13. Schmidt, Stefanie R, 1999. "Long-Run Trends in Workers' Beliefs about Their Own Job Security: Evidence from the General Social Survey," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages S127-41, October.
  14. Rogerson, Richard & Schindler, Martin, 2002. "The welfare costs of worker displacement," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1213-1234, September.
  15. Philippe Weil, 1992. "Equilibrium Asset Prices With Undiversifiable Labor Income Risk," NBER Working Papers 3975, National Bureau of Economic Research, Inc.
  16. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  17. Jahn, Elke J. & Wagner, Thomas, 2005. "Contractual Employment Protection and the Scarring Risk of Unemployment," IZA Discussion Papers 1813, Institute for the Study of Labor (IZA).
  18. Francis Green, 2003. "The Rise and Decline of Job Insecurity," Studies in Economics 0305, School of Economics, University of Kent.
  19. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
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