Wages, Seniority and Separation Rates...
We discuss a theoretical framework for the job duration of in-
dividual 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.
Wages, seniority and separation rates