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Job dynamics, correlated shocks and wage profiles
Cabrales, Antonio; Hopenhayn, Hugo
Universitat Pompeu Fabra. Departament d'Economia i Empresa
We generalize the Mortensen-Pissarides (1994) model of the labor marketwith a more realistic structure for the stochastic process of theshocks to the worker-firm match. In this way we can acommodate theempirical observation that hazard rates of job termination decrease andaverage wages increase with job tenure. Besides being able to fit bettersome observables of the model, the changes we introduce are nontrivialfor the analysis of policies as well.
layoff costs
layoff hazard rates
wage-tenure relationship
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