Search and the Firm's Choice of the Optimal Labor Contract

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: This article studies the behavior of a firm searching to fill a vacancy. The main assumption is that the firm can offer two different kinds of contracts to the workers, either a short-term contract or a long-term one. The short-term contract acts as a probationary stage in which the firm can learn the worker s type. After this stage, the firm can propose a long- term contract to the worker or it can decide to look for another worker. We show that, if the short-term wage is fixed endogenously, for the firms can be optimal to start a working relationship with a short-term contract, but that this policy has a negative impact on unemployment and welfare. On the contrary, if this wage is fixed exogenously, this policy could be optimal also from welfare point of view.

Keywords: search; temporary employment (search for similar items in EconPapers)
JEL-codes: J31 J41 J64 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-bec and nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:200708

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