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An equilibrium search model with optimal wage-experience contracts

Carrillo-Tudela, C (2009) 'An equilibrium search model with optimal wage-experience contracts.' Review of Economic Dynamics, 12 (1). 108 - 128. ISSN 1094-2025

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Abstract

The objective of this paper is to study equilibrium in a labour market, in which workers search on the job and firms offer wage contracts conditional upon workers' experience and employment status. In this environment, the optimal contract can be described by a promotion contract. The distribution of contract offers is dispersed within and across experience levels. As workers stay longer in the market and promotion dates get closer, the option value of holding a job increases. Firms offer early promotions to attract more experienced workers. A positive relation between experience and earnings can arise purely from firms' optimal response to labour market competition brought about by workers' on-the-job search. We characterise the offer distribution for each experience level and show how these change with labour market conditions. © 2008 Elsevier Inc. All rights reserved.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 03 Jul 2012 16:23
Last Modified: 09 Oct 2020 15:15
URI: http://repository.essex.ac.uk/id/eprint/2734

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