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Wage Dispersion and Labor Turnover with Adverse Selection

Carlos Carrillo-Tudela and Leo Kaas

No 5936, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We consider a model of on-the-job search where firms offer long-term wage contracts to workers of different ability. Firms do not observe worker ability upon hiring but learn it gradually over time. 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 designed to retain high-ability workers only. Low-ability workers have higher turnover rates, they are more often employed in low-wage firms and face an earnings distribution with a higher frictional component. Furthermore, positive sorting obtains in equilibrium.

Keywords: adverse selection; on-the-job search; wage dispersion; sorting (search for similar items in EconPapers)
JEL-codes: D82 J63 J64 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2011-08
New Economics Papers: this item is included in nep-bec, nep-cta, nep-dge, nep-hrm, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Wage Dispersion and Labor Turnover with Adverse Selection (2011) Downloads
Working Paper: Wage Dispersion and Labour Turnover with Adverse Selection (2011) Downloads
Working Paper: Wage Dispersion and Labor Turnover with Adverse Selection (2011) Downloads
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