Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/49515 
Year of Publication: 
2011
Series/Report no.: 
CESifo Working Paper No. 3562
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
adverse selection
on-the-job search
wage dispersion
sorting
JEL: 
D82
J63
J64
Document Type: 
Working Paper
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