Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/55097 
Year of Publication: 
2011
Series/Report no.: 
IZA Discussion Papers No. 5936
Publisher: 
Institute for the Study of Labor (IZA), Bonn
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
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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