Job search by employed workers : the effects of restrictions

Within the framework of a general equilibrium search model, the authors study the effect of institutional restrictions on workers'job mobility. The model generates endogenuous job searches on the job and off the job with two forms of labor contracts emerging and coexisting in equilibrium. One form of contract involves the workers'long-term commitment to the firm ("reversed tenure"): some firms offer high wages in return for their workers'commitment not to search for better jobs. The other is a short-term contract requiring no such commitment: some firms that cannot afford to pay wages that guarantee lifetime attachment pay lower wages, have lower turn-over costs, but impose no restrictions on searches for better jobs. The authors study the effects on employment of exogenous restrictions on mobility - in the form of a transfer from the quitting worker, made either to the employer or to a third party. These transfers, the separation bonds, are typically the benefits lost by the quitting worker, such as vested pension. Restrictions of this type, by crowding out the firms that allow on-the-job searches for employment directly increase unemployment. When restrictions on workers'mobility take the form of a zero-sum transfer, there is no real effect so long as the transfer is below some bound - the worker loses nothing. When the separation bond is prohibitively large, or when it is forfeited to a third party, employment among all types of workers falls.