Reputation Concerns Under At-Will Employment

42 Pages Posted: 26 Jul 2019

See all articles by Jian Sun

Jian Sun

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Dong Wei

University of California, Berkeley - Department of Economics

Date Written: April 30, 2019

Abstract

We study a continuous-time model of long-run employment relationship with fixed wage and at-will firing; that is, termination of the relationship is non-contractible. Depending on his type, the worker either always works hard, or can freely choose his effort level. The firm does not know the worker’s type and the monitoring is imperfect. We show that, in the unique Markov equilibrium, as the worker’s reputation worsens, his job becomes less secure and the strategic worker works harder. We further demonstrate that the relationship between average productivity and job insecurity is U shaped, which is consistent with typical findings in the organizational psychology literature.

Keywords: moral hazard, job insecurity, reputation, at-will employment

JEL Classification: C73, D83, J24, M51

Suggested Citation

Sun, Jian and Wei, Dong, Reputation Concerns Under At-Will Employment (April 30, 2019). Available at SSRN: https://ssrn.com/abstract=3424122 or http://dx.doi.org/10.2139/ssrn.3424122

Jian Sun

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

Dong Wei (Contact Author)

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

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