Repeated Moral Hazard with Worker Mobility via Directed On-the-Job Search

Kunio Tsuyuhara
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Kunio Tsuyuhara: University of Calgary

No 630, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: This paper proposes a search theoretic model of optimal employment contract under repeated moral hazard. The model integrates two important attributes of the labour market: workers' work incentive on the job and their mobility in the labour market. The optimal long-term contract is characterized by an increasing wage-tenure profile. The labour productivity of a match also increases with tenure due to a worker's increasing effort provision. Even though all workers and firms are ex ante homogeneous, these two outcomes jointly generate endogenous heterogeneity of the wages and labour productivity. It is also shown that the interaction of these factors provides novel implications for wage dispersion, and the calibrated model generates significantly larger wage dispersion than previous studies.

Date: 2012
New Economics Papers: this item is included in nep-cta, nep-dge and nep-hrm
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:630

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