[go: up one dir, main page]

IDEAS home Printed from https://ideas.repec.org/a/the/publsh/4623.html
   My bibliography  Save this article

Wages as signals of worker mobility

Author

Listed:
  • Chen, Yu

    (Department of Economics, University of Calgary)

  • Doyle, Matthew

    (Department of Economics, University of Waterloo)

  • Gonzalez, Francisco M.

    (Department of Economics, University of Waterloo)

Abstract
We analyze a model in which workers direct their search on and off the job and employer-worker match productivities are private information. Employers can commit neither to post contracts such that wages are a function of tenure nor to disregard counteroffers. In this context, potential employers who do not observe workers' productivity in their current matches use wages as a signal of workers' willingness to switch jobs. In turn, this implies that the wage contracts that employers post in the market for entry jobs --- the jobs unemployed workers search for --- not only direct job search but also signal future worker mobility. When the costs of creating entry jobs are sufficiently small, the unique equilibrium supports the efficient allocation under full information. When the costs of creating entry jobs are sufficiently large, the efficient equilibrium may break down because match-specific risk gives rise to a holdup problem in the market for entry jobs. Then, the unique equilibrium may fail to reveal match productivities in the market for entry jobs. The non-revealing equilibrium features wage posting --- pooling wage contracts --- as well as counteroffers, which eliminates the holdup problem at the cost of distorting worker mobility.

Suggested Citation

  • Chen, Yu & Doyle, Matthew & Gonzalez, Francisco M., 2024. "Wages as signals of worker mobility," Theoretical Economics, Econometric Society, vol. 19(1), January.
  • Handle: RePEc:the:publsh:4623
    as

    Download full text from publisher

    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20240499/38424/1182
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pablo Kurlat & Florian Scheuer, 2021. "Signalling to Experts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(2), pages 800-850.
    2. Shintaro Yamaguchi, 2010. "Job Search, Bargaining, and Wage Dynamics," Journal of Labor Economics, University of Chicago Press, vol. 28(3), pages 595-631, July.
    3. Carrillo-Tudela, Carlos & Kaas, Leo, 2015. "Worker mobility in a search model with adverse selection," Journal of Economic Theory, Elsevier, vol. 160(C), pages 340-386.
    4. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, September.
    5. Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
    6. Derek Stacey, 2016. "Commitment And Costly Signaling In Decentralized Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(4), pages 1507-1533, November.
    7. Veronica Guerrieri & Robert Shimer, 2014. "Dynamic Adverse Selection: A Theory of Illiquidity, Fire Sales, and Flight to Quality," American Economic Review, American Economic Association, vol. 104(7), pages 1875-1908, July.
    8. Douglas Gale, 1996. "Equilibria and Pareto optima of markets with adverse selection (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 207-235.
    9. John M. Abowd & Francis Kramarz & Sébastien Roux, 2006. "Wages, Mobility and Firm Performance: Advantages and Insights from Using Matched Worker-Firm Data," Economic Journal, Royal Economic Society, vol. 116(512), pages 245-285, June.
    10. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 535-551.
    11. Claudio Michelacci & Javier Suarez, 2006. "Incomplete Wage Posting," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1098-1123, December.
    12. Briana Chang, 2018. "Adverse Selection and Liquidity Distortion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 275-306.
    13. Alan B. Krueger & Orley Ashenfelter, 2022. "Theory and Evidence on Employer Collusion in the Franchise Sector," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 324-348.
    14. Delacroix, Alain & Shi, Shouyong, 2013. "Pricing and signaling with frictions," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1301-1332.
    15. Robert E. Hall & Alan B. Krueger, 2012. "Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 56-67, October.
    16. Fabien Postel-Vinay & Jean-Marc Robin, 2004. "To Match or Not to Match? Optimal Wage Policy With Endogenous Worker Search Intensity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 297-330, April.
    17. Lisa B. Kahn, 2013. "Asymmetric Information between Employers," American Economic Journal: Applied Economics, American Economic Association, vol. 5(4), pages 165-205, October.
    18. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
    19. Guido Menzio, 2007. "A Theory of Partially Directed Search," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 748-769, October.
    20. Pradeep Dubey & John Geanakoplos, 2002. "Competitive Pooling: Rothschild-Stiglitz Reconsidered," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1529-1570.
    21. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, March.
    22. Ioana Marinescu & Ronald Wolthoff, 2020. "Opening the Black Box of the Matching Function: The Power of Words," Journal of Labor Economics, University of Chicago Press, vol. 38(2), pages 535-568.
    23. Shouyong Shi, 2002. "A Directed Search Model of Inequality with Heterogeneous Skills and Skill-Biased Technology," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(2), pages 467-491.
    24. Bruce C. Greenwald, 1986. "Adverse Selection in the Labour Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 325-347.
    25. Douglas Gale, 1992. "A Walrasian Theory of Markets with Adverse Selection," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(2), pages 229-255.
    26. Fabien Postel-Vinay & Jean-Marc Robin, 2004. "To match or not to match? Optimal wage policy with endogenous worker search intensity," SciencePo Working papers hal-03587620, HAL.
    27. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    28. Kyungmin Kim & Philipp Kircher, 2015. "Efficient Competition Through Cheap Talk: The Case of Competing Auctions," Econometrica, Econometric Society, vol. 83(5), pages 1849-1875, September.
    29. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    30. Alain Delacroix & Shouyong Shi, 2006. "Directed Search On The Job And The Wage Ladder," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 651-699, May.
    31. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
    32. Randall Wright & Philipp Kircher & Benoît Julien & Veronica Guerrieri, 2021. "Directed Search and Competitive Search Equilibrium: A Guided Tour," Journal of Economic Literature, American Economic Association, vol. 59(1), pages 90-148, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yu Chen & Matthew Doyle & Francisco Gonzalez, 2019. "Bad Jobs," Working Papers 1902, University of Waterloo, Department of Economics, revised Jan 2019.
    2. Yu (Sonja) Chen & Matthew Doyle & Francisco M. Gonzalez, "undated". "Mismatch as choice," Working Papers 2017-04, Department of Economics, University of Calgary, revised 15 May 2017.
      • Francisco M. Gonzalez & Yu Chen & Matthew Doyle, 2017. "Mismatch As Choice," Working Papers 1702, University of Waterloo, Department of Economics, revised May 2017.
    3. Davoodalhosseini, Seyed Mohammadreza, 2019. "Constrained efficiency with adverse selection and directed search," Journal of Economic Theory, Elsevier, vol. 183(C), pages 568-593.
    4. Shi, Shouyong, 2016. "Customer relationship and sales," Journal of Economic Theory, Elsevier, vol. 166(C), pages 483-516.
    5. Kircher, Philipp & Wright, Randall & Julien, Benoit & Guerrieri, Veronica, 2017. "Directed Search: A Guided Tour," CEPR Discussion Papers 12315, C.E.P.R. Discussion Papers.
    6. Auster, Sarah & Gottardi, Piero, 2019. "Competing mechanisms in markets for lemons," Theoretical Economics, Econometric Society, vol. 14(3), July.
    7. Hermann Gartner & Christian Holzner, 2015. "Wage Posting as a Positive Selection Device: Theory and Empirical Evidence," CESifo Working Paper Series 5494, CESifo.
    8. Sarah Auster & Piero Gottardi & Ronald Wolthoff, 2022. "Simultaneous Search and Adverse Selection," Working Papers tecipa-734, University of Toronto, Department of Economics.
    9. Dosis, Anastasios, 2018. "On signalling and screening in markets with asymmetric information," Journal of Mathematical Economics, Elsevier, vol. 75(C), pages 140-149.
    10. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, March.
    11. Albrecht, James & Cai, Xiaoming & Gautier, Pieter A. & Vroman, Susan, 2024. "Competitive Search with Private Information: Can Price Signal Quality?," IZA Discussion Papers 17246, Institute of Labor Economics (IZA).
    12. Cai, Xiaoming & Gautier, Pieter A. & Wolthoff, Ronald P., 2017. "Search frictions, competing mechanisms and optimal market segmentation," Journal of Economic Theory, Elsevier, vol. 169(C), pages 453-473.
    13. Auster, Sarah & Gottardi, Piero, 2024. "Sorting versus screening in decentralized markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 220(C).
    14. Carrillo-Tudela, Carlos & Kaas, Leo, 2015. "Worker mobility in a search model with adverse selection," Journal of Economic Theory, Elsevier, vol. 160(C), pages 340-386.
    15. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 468-510.
    16. Ronald Wolthoff, 2014. "It'S About Time: Implications Of The Period Length In An Equilibrium Search Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(3), pages 839-867, August.
    17. Mangin, Sephorah, 2017. "A theory of production, matching, and distribution," Journal of Economic Theory, Elsevier, vol. 172(C), pages 376-409.
    18. Stefano Banfi & Benjamín Villena-Roldán, 2019. "Do High-Wage Jobs Attract More Applicants? Directed Search Evidence from the Online Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 37(3), pages 715-746.
    19. Delacroix, Alain & Shi, Shouyong, 2013. "Pricing and signaling with frictions," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1301-1332.
    20. Davoodalhosseini, Seyed Mohammadreza, 2022. "Optimal taxation in asset markets with adverse selection," European Economic Review, Elsevier, vol. 147(C).

    More about this item

    Keywords

    Competitive search equilibrium; private information; limited commitment; wage posting; counteroffers; worker mobility;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:the:publsh:4623. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin J. Osborne (email available below). General contact details of provider: http://econtheory.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.