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Repeated Moral Hazard with Worker Mobility via Directed On-the-Job Search

  • Kunio Tsuyuhara

    (University of Calgary)

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    This paper proposes a search theoretic model of optimal employment contract under repeated moral hazard. The model integrates two important attributes of the labour market: workers' work incentive on the job and their mobility in the labour market. The optimal long-term contract is characterized by an increasing wage-tenure profile. The labour productivity of a match also increases with tenure due to a worker's increasing effort provision. Even though all workers and firms are ex ante homogeneous, these two outcomes jointly generate endogenous heterogeneity of the wages and labour productivity. It is also shown that the interaction of these factors provides novel implications for wage dispersion, and the calibrated model generates significantly larger wage dispersion than previous studies.

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    Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 630.

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    Date of creation: 2012
    Date of revision:
    Handle: RePEc:red:sed012:630
    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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