Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/124885
Authors: 
Carrillo-Tudela, Carlos
Kaas, Leo
Year of Publication: 
2015
Series/Report no.: 
IZA Discussion Papers 9367
Abstract: 
We analyze the effects of adverse selection on worker turnover and wage dynamics in a frictional labor market. We consider a model of on-the-job search where firms offer promotion wage contracts to workers of different abilities, which is unknown to firms at the hiring stage. 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, promoting high-ability workers only. Low-ability workers have higher turnover rates and are more often employed in low-wage firms. The model replicates the negative relationship between job-to-job transitions and wages observed in the U.S. labor market.
Subjects: 
adverse selection
on-the-job search
worker mobility
wage dynamics
JEL: 
D82
J63
J64
Document Type: 
Working Paper

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