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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.

Suggested Citation

  • Jahn, Elke J. & Wagner, Thomas, 2008. "Job Security as an Endogenous Job Characteristic," Working Papers 08-6, University of Aarhus, Aarhus School of Business, Department of Economics.
  • Handle: RePEc:hhs:aareco:2008_006

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    References listed on IDEAS

    1. 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).
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    More about this item


    job security; hedonic market; implicit contract theory; guaranteed employment contract; severance pay contract; asymmetric information; prudence;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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