Paper #260

Title:

Job dynamics, correlated shocks and wage profiles

Authors:

Antonio Cabrales and Hugo Hopenhayn

Date:

January 1998

Abstract:

We generalize the Mortensen-Pissarides (1994) model of the labor market with a more realistic structure for the stochastic process of the shocks to the worker-firm match. In this way we can acommodate the empirical observation that hazard rates of job termination decrease and average wages increase with job tenure. Besides being able to fit better some observables of the model, the changes we introduce are nontrivial for the analysis of policies as well.

Keywords:

Layoff costs, search, layoff hazard rates, wage-tenure relationship

JEL codes:

J60, J30

Area of Research:

Microeconomics

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