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Tenure Profiles and Efficient Separation in a Stochastic Productivity Model

Publicatii proprii > Array

Autori: Buhai, I.S. and C.N. Teulings

Editorial: Journal of Business and Economic Statistics, 32 (2), p.245-258, 2014.


We develop a theoretical model based on efficient bargaining, where both log outside productivity and log
productivity in the current job follow a random walk. This setting allows the application of real option
theory. We derive the efficient worker-firm separation rule. We show that wage data from completed job
spells are uninformative about the true tenure profile. The model is estimated on the Panel Study of Income
Dynamics. It fits the observed distribution of job tenures well. Selection of favorable random walks can
account for the concavity in tenure profiles. About 80% of the estimated wage returns to tenure is due to
selectivity in the realized outside productivities.