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Wage Dispersion and Labor Turnover with Adverse Selection

Author

Listed:
  • Carrillo-Tudela, Carlos

    () (University of Essex)

  • Kaas, Leo

    () (Goethe University Frankfurt)

Abstract

We consider a model of on-the-job search where firms offer long-term wage contracts to workers of different ability. Firms do not observe worker ability upon hiring but learn it gradually over time. 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 designed to retain high-ability workers only. Low-ability workers have higher turnover rates, they are more often employed in low-wage firms and face an earnings distribution with a higher frictional component. Furthermore, positive sorting obtains in equilibrium.

Suggested Citation

  • Carrillo-Tudela, Carlos & Kaas, Leo, 2011. "Wage Dispersion and Labor Turnover with Adverse Selection," IZA Discussion Papers 5936, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5936
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    References listed on IDEAS

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    Cited by:

    1. Carrillo-Tudela, Carlos & Kaas, Leo, 2015. "Worker mobility in a search model with adverse selection," Journal of Economic Theory, Elsevier, vol. 160(C), pages 340-386.
    2. Pinheiro, Roberto & Visschers, Ludo, 2015. "Unemployment risk and wage differentials," Journal of Economic Theory, Elsevier, vol. 157(C), pages 397-424.

    More about this item

    Keywords

    adverse selection; on-the-job search; wage dispersion; sorting;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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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