Working Papers, Department of Economics, Aarhus School of Business, University of Aarhus
Tenure Profiles and Efficient Separation in a Stochastic Productivity Model.
() and Coen Teulings
Abstract: This paper provides a new way of analyzing tenure profiles
by modelling simultaneously the evolution of wages and the
of tenures. Starting point is the observation that
within-job log wages for
an individual can be described by random walk.
We develop a theoretical
model based on efficient bargaining, where
both log outside wage and log
wage in the current job follow a random
walk. This setting allows the
application of real option theory. We
derive the efficient separation rule,
which stipulates that workers
switch jobs when the difference between the
outside wage and the wage
in the current job reaches a threshold. The
model fits well the
observed distribution of job tenures. Since we observe
only at job start and job separation, our empirical analysis
job wage growth is based on expected wage growth conditional
outside wages at both dates. Our modelling allows testing of the
efficient bargaining hypothesis. The model is estimated on the PSID.
Keywords: Random productivity growth; efficient bargaining; job tenure; wage growth; wage-tenure profiles; option theory; (follow links to similar papers)
JEL-Codes: C51; C52; J63; (follow links to similar papers)
43 pages, October 20, 2005, Revised October 3, 2006
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