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

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  • D. Paolini

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.

Suggested Citation

  • D. Paolini, 2007. "Search and the Firm's Choice of the Optimal Labor Contract," Working Paper CRENoS 200708, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:200708
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    File URL: https://crenos.unica.it/crenos/node/257
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    Citations

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    Cited by:

    1. Dimitri Paolini & Juan de Tena, 2012. "Short or long-term contract? Firm’s optimal choice," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 39(1), pages 1-18, February.
    2. M. Pitzalis & I. Sulis & M. Porcu, 2008. "Differences of Cultural Capital among Students in Transition to University. Some First Survey Evidences," Working Paper CRENoS 200805, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    3. D. Paolini, 2008. "Screening and short-term contracts," Working Paper CRENoS 200819, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    4. I. Sulis & M. Porcu, 2008. "Assessing the Effectiveness of a Stochastic Regression Imputation Method for Ordered Categorical Data," Working Paper CRENoS 200804, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

    More about this item

    Keywords

    search; temporary employment;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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