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I. Sebastian Buhai. Wages, Seniority and Separation Rates in a Stochastic Productivity Model: A Comparative Perspective. 2003.

Abstract: We discuss a theoretical framework for the job duration of individual workers and the evolution of the wage rate during that job assuming that individual productivity follows a geometric Brownian. A comparative overview of job search, random learning and random growth models is put forward as background to the literature on job tenure distribution. The random growth model fits best the hump-shaped tenure profile observed in data on job separation rates and is consistent with empirical evidence that log wages follow a random walk. We provide a synopsis of the persisting debate on the returns to job seniority adding a non-deterministic tenure profile perspective. The specification of the model allows the application of option theory to calculate the value of a job and the optimal job separation rule. An extension to the initial model adding log firm size is introduced.

Keywords: labour economics, job seniority, random growth models, job exit rates, applied option theory, wage rate, firm size, stochastic productivity


Posted by Sebastian Buhai


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