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Temporary Layoffs with Incomplete Worker Attachment in Search Equilibrium

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  • Anna Zaharieva (Chizhova)

    (Department of Economics, University of Konstanz, Germany)

Abstract

This paper revisits the no-attachment assumption in job search models with random productivity fluctuations and Nash-bargaining. Both workers and firms value the option to remain in attachment: firms profit from a reduced hiring cost, while workers gain from a higher reservation wage when bargaining with a new employer. Ex-post differentiation of workers into attached and unattached unemployed produces endogenous binary wage dispersion. The decentralized equilibrium with a Hosios value of the bargaining power is no longer constrained efficient: when changing attachment workers impose a negative externality on their former employer originating from a loss of the recall option. This inefficiency tends to produce excessive job creation. The paper also investigates returns to job mobility in Germany and shows that being recalled to the previous employer as opposed to the new job is associated with about 8% lower probability of wage improvement.

Suggested Citation

  • Anna Zaharieva (Chizhova), 2010. "Temporary Layoffs with Incomplete Worker Attachment in Search Equilibrium," Working Paper Series of the Department of Economics, University of Konstanz 2010-08, Department of Economics, University of Konstanz.
    • Handle: RePEc:knz:dpteco:1008
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    File URL: http://www.uni-konstanz.de/FuF/wiwi/workingpaperseries/WP_Zaharieva-8-10.pdf
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    References listed on IDEAS

    as
    1. Laffont, Jean-Jacques & Rochet, Jean-Charles, 1998. "Regulation of a Risk Averse Firm," Games and Economic Behavior, Elsevier, vol. 25(2), pages 149-173, November.
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    More about this item

    Keywords

    Search equilibrium; temporary layoff; constrained efficiency; wage dispersion;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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