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Wage Dispersion and Labour Turnover with Adverse Selection

  • Carlos Carrillo-Tudela

    ()

    (Department of Economics, University of Essex, United Kingdom)

  • Leo Kaas

    ()

    (Department of Economics, University of Konstanz, Germany)

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.

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Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-29.

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Length: 42 pages
Date of creation: 16 Aug 2011
Date of revision:
Handle: RePEc:knz:dpteco:1129
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  1. Michelacci, Claudio & Suarez, Javier, 2002. "Incomplete Wage Posting," CEPR Discussion Papers 3658, C.E.P.R. Discussion Papers.
  2. Gabriele Camera & Alain Delacroix, 2004. "Trade Mechanism Selection in Markets with Frictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 851-868, October.
  3. Veronica Guerrieri & Robert Shimer & Randall Wright, 2009. "Adverse Selection in Competitive Search Equilibrium," NBER Working Papers 14915, National Bureau of Economic Research, Inc.
  4. Montgomery, James D, 1999. "Adverse Selection and Employment Cycles," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 281-97, April.
  5. Dale T. Mortensen & Rasmus Lentz, 2005. "An Empirical Model of Growth Through Product Innovation," 2005 Meeting Papers 910, Society for Economic Dynamics.
  6. Margaret Stevens, 2000. "Wage-Tenure Contracts in a Frictional Labour Market: Firms Strategies for Recruitment and Retention," Economics Series Working Papers 2000-W10, University of Oxford, Department of Economics.
  7. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2011. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," American Economic Review, American Economic Association, vol. 101(7), pages 2873-98, December.
  8. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2b, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Lentz, Rasmus, 2010. "Sorting by search intensity," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1436-1452, July.
  10. Burdett, Ken & Carrillo-Tudela, Carlos & Coles, Melvyn, 2009. "Human Capital Accumulation and Labour Market Equilibrium," IZA Discussion Papers 4215, Institute for the Study of Labor (IZA).
  11. Iourii Manovskii & Gueorgui Kambourov, 2004. "Occupational Specificity of Human Capital," 2004 Meeting Papers 197, Society for Economic Dynamics.
  12. Nicolas Williams, 2004. "Seniority, Experience, and Wages in the UK," University of Cincinnati, Economics Working Papers Series 2004-06, University of Cincinnati, Department of Economics.
  13. Adriana D. Kugler & Gilles Saint-Paul, 2004. "How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 553-584, July.
  14. Julia I. Lane & John C. Haltiwanger & James Spletzer, 1999. "Productivity Differences across Employers: The Roles of Employer Size, Age, and Human Capital," American Economic Review, American Economic Association, vol. 89(2), pages 94-98, May.
  15. Walter Y. Oi & Todd L. Idson, 1999. "Workers Are More Productive in Large Firms," American Economic Review, American Economic Association, vol. 89(2), pages 104-108, May.
  16. Carlos Carrillo-Tudela, 2009. "An Equilibrium Search Model When Firms Observe Workers' Employment Status," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 485-506, 05.
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