Wage-Tenure Contracts in a Frictional Labour Market: Firms' Stratgies for Recruitment and Retention
This paper analyses the contract-posting equilibrium in a general equilibrium matching model of the labour market with on-the-job turnover. Privately optimal contracts have a rising wage-tenure profile, even when productivity is constant. The effect is to reduce equilibrium turnover; when jobs differ in productivity, turnover is below the level required for efficient matching of workers to jobs.
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