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Wage-Tenure Contracts, Experience and Employment Status

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  • Carlos Carrillo-Tudela

    () (Department of Economics University of Essex)

Abstract

The objective of this paper is to study equilibrium in a labour market with search frictions a la Burdett and Mortensen (1998). Identical firms post wage-contracts and ex-ante identical workers search for a job while unemployed and for a better one while employed. Although this situation has been analysed before, Stevens (2004) and Burdett and Coles (2003), the main novelty of this paper is to allow firms to offer contracts according to the worker's initial experience and employment status. We construct an equilibrium in which firms compete in 'promotion' contracts and offer unemployed workers longer 'probation' periods than to employed workers. An interesting feature of this equilibrium is that outside offers become more generous with experience. This generates workers cohort effects within a firm that depend on the level of experience at which they where hired. The distribution of earnings within the firm is then such that workers who have acquired more 'outside' firm experience and more tenure are higher in the earnings scale.
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Suggested Citation

  • Carlos Carrillo-Tudela, 2005. "Wage-Tenure Contracts, Experience and Employment Status," 2005 Meeting Papers 110, Society for Economic Dynamics.
  • Handle: RePEc:red:sed005:110
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    File URL: http://repec.org/sed2005/up.30914.1105018025.pdf
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    References listed on IDEAS

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    1. Gerard J. van den Berg & Geert Ridder, 1998. "An Empirical Equilibrium Search Model of the Labor Market," Econometrica, Econometric Society, vol. 66(5), pages 1183-1222, September.
    2. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 535-551.
    3. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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    Cited by:

    1. Carlos Carrillo-Tudela, 2009. "An Equilibrium Search Model with Optimal Wage-Experience Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 108-128, January.
    2. Carrillo-Tudela, C, 2005. "Wage-Experience Contracts and Employment Status," Economics Discussion Papers 2733, University of Essex, Department of Economics.

    More about this item

    Keywords

    Search; experience; contracts; promotion; dual labour markets; discrimination.;

    JEL classification:

    • 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
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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