Wage-Tenure Contracts, Experience and Employment Status
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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|Date of creation:||2005|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
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- 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.
- Stevens, M., 2000. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Stratgies for Recruitment and Retention," Economics Papers 2000-w10, Economics Group, Nuffield College, University of Oxford.
- 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.
- Berg, G.J. & Ridder, G., 1993. "An empirical equilibrium search model of the labour market," Serie Research Memoranda 0039, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
- 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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