skip to content

Faculty of Economics

Journal Cover

Buhai, S. and Teulings, C.N.

Tenure profiles and efficient separation in a stochastic productivity model

Journal of Business and Economic Statistics

Vol. 32(2) pp. 245-258 (2014)

Abstract: 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.

Keywords: Efficient bargaining, Inverse Gaussian, Option theory, Random productivity growth, Wage-tenure profiles

Author links:

Publisher's Link:

Papers and Publications

Recent Publications

Onatski, A. and Wang, C. Spurious Factor Analysis Econometrica [2021]

Carvalho, V. M., Nirei, M., Saito, Y. U. and Tahbaz-Salehi, A. Supply Chain Disruptions: Evidence from the Great East Japan Earthquake Quarterly Journal of Economics [2021]

Bodenstein, M., Corsetti G. and Guerrieri, L. Social Distancing and Supply Disruptions in a Pandemic Quantitative Economics [2022]

Toxvaerd, F.M.O. and Rowthorn, R. On the Management of Population Immunity Journal of Economic Theory [2022]