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Worker Mobility in a Search Model with Adverse Selection

Listed author(s):
  • Leo Kaas

    (University of Konstanz)

  • Carlos Carrillo-Tudela

    (Essex)

We analyze the effects of adverse selection on worker turnover and wage dynamics in a frictional labor market. We consider a model of on-the-job search where firms offer promotion wage contracts to workers of different ability, which is unknown to firms at the hiring stage. 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, promoting high-ability workers only. Low-ability workers have higher turnover rates and are more often employed in low-wage firms. The model replicates the negative relationship between job-to-job transitions and wages observed in the U.S. labor market.

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File URL: https://economicdynamics.org/meetpapers/2015/paper_351.pdf
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Paper provided by Society for Economic Dynamics in its series 2015 Meeting Papers with number 351.

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Date of creation: 2015
Handle: RePEc:red:sed015:351
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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