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Wage/tenure contracts with heterogeneous firms

Burdett, K and Coles, M (2010) 'Wage/tenure contracts with heterogeneous firms.' Journal of Economic Theory, 145 (4). 1408 - 1435. ISSN 0022-0531

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Abstract

This paper investigates equilibria where firms post wage/tenure contracts and risk averse workers search for new job opportunities whether employed or unemployed. We generalize previous work by assuming firms have different productivities. Equilibrium implies more productive firms always offer more desirable contracts. Thus workers never quit from more productive firms for less productive firms. Nevertheless turnover is inefficient as employees with long tenures at low productivity firms may reject outside job offers from more productive firms. A worker who quits to a more productive firm may accept a wage cut. Such wage cuts are compensated by faster " promotion" rates to higher wage levels in the future. We also generalize previous arguments by showing equilibria exist where the distribution of offers contains interior mass points and find equilibrium wage/tenure contracts need not be smooth. © 2010 Elsevier Inc.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 05 Jan 2013 16:44
Last Modified: 17 Aug 2017 18:04
URI: http://repository.essex.ac.uk/id/eprint/4921

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