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Worker mobility in a search model with adverse selection

Carrillo-Tudela, Carlos and Kaas, Leo (2015) 'Worker mobility in a search model with adverse selection.' Journal of Economic Theory, 160. 340 - 386. ISSN 0022-0531

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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 abilities, 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.

Item Type: Article
Uncontrolled Keywords: Adverse selection, On-the-job search, Worker mobility, Wage dynamics
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 09 Jan 2016 17:29
Last Modified: 09 Oct 2020 14:15

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