Working Paper: NBER ID: w19988
Authors: Rasmus Lentz
Abstract: In this paper I explore optimal employment contract design in a random search framework, where workers search on and off the job for employment opportunities similar to that of Lentz (2010) and Bagger and Lentz (2013). The worker determines the frequency by which employment opportunities arrive through a costly choice of search intensity, which is unobserved by the firm and cannot be directly contracted upon. Firms differ in productivity by which they employ workers. Firms compete over workers in terms of utility promises in a fashion otherwise similar to that of Postel-Vinay and Robin (2002). As in Burdett and Coles (2003) and Burdett and Coles (2010), optimal tenure conditional contracts are shown to be back loaded to discourage the worker from generating outside competitive pressure. The analysis establishes existence, uniqueness and provides characterization of the core mechanism. The paper applies the framework to the analysis of firm provided general human capital training. It is shown that more productive firms provide more training and pay higher wages.
Keywords: employment contracts; search intensity; firm productivity; human capital training
JEL Codes: E24; J01; J24; J31; J33; J41; J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Worker's search intensity (J29) | Frequency of employment opportunities (J63) |
| Firms' productivity (D21) | Willingness to pay workers (J39) |
| Optimal employment contract structure (J33) | Wage backloading (J33) |
| Firms' productivity (D21) | Training provision (M53) |
| Wage structures (J31) | Worker behavior regarding search intensity (C92) |
| Worker behavior regarding search intensity (C92) | Job separation hazard (J63) |