Tenure Profiles and Efficient Separation in a Stochastic Productivity Model
Tinbergen Institute Discussion Paper No. 2005-099/3
54 Pages Posted: 10 Mar 2006
There are 3 versions of this paper
Tenure Profiles and Efficient Separation in a Stochastic Productivity Model
Tenure Profiles and Efficient Separation in a Stochastic Productivity Model
Tenure Profiles and Efficient Separation in a Stochastic Productivity Model
Date Written: February 26, 2006
Abstract
This paper provides a new way of analyzing tenure profiles in wages, by modelling simultaneously the evolution of wages and the distribution of tenures. We develop a theoretical model based on effcient bargaining, where both log outside wage and log wage in the current job follow a random walk, as found empirically. This setting allows the application of real option theory. We derive the effcient separation rule. The model fits the observed distribution of job tenures well. Since we observe outside wages only at job start and job separation, our empirical analysis of within job wage growth is based on expected wage growth conditional on the outside wages at both dates. Our modelling allows testing of the effcient bargaining hypothesis. The model is estimated on the PSID.
Keywords: random productivity growth, efficient bargaining, job tenure, inverse gaussian, wage-tenure profiles, option theory
JEL Classification: C51, C52, J63
Suggested Citation: Suggested Citation
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