Short or long-term contract? Firm’s optimal choice
Title | Short or long-term contract? Firm’s optimal choice |
Publication Type | Journal Article |
Year of Publication | 2012 |
Authors | Paolini, D, Tena, JD |
Journal | Empirica |
Volume | 39 |
Issue | 1 |
Pagination | 1-18 |
Abstract | This article studies the behaviour 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 about the worker. 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, it can be optimal for firms to start a working relationship with a short-term contract, but that this policy decreases unemployment and welfare. On the contrary, if the wage is fixed exogenously, this policy could be optimal also from a welfare point of view. |
URL | http://link.springer.com/article/10.1007/s10663-010-9152-1 |
DOI | 10.1007/s10663-010-9152-1 |
Keywords | search, short-term wage, temporary employment |