Short or long-term contract? Firm's optimal choice

Paolini, D and de Dios Tena, J ORCID: 0000-0001-8281-2886 (2012) Short or long-term contract? Firm's optimal choice Empirica, 39 (1). pp. 1-18. ISSN 0340-8744, 1573-6911

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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. © 2011 Springer Science+Business Media, LLC.

Item Type:	Article
Uncontrolled Keywords:	38 Economics, 3801 Applied Economics
Depositing User:	Symplectic Admin
Date Deposited:	22 Sep 2015 09:56
Last Modified:	22 May 2026 23:33
DOI:	10.1007/s10663-010-9152-1
Related Websites:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/2026741
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