Search and the firm's choice of the optimal labor contract

This article studies the behavior 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 the worker's type. 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, for the firms can be optimal to start a working relationship with a short-term contract, but that this policy has a negative impact on unemployment and welfare. On the contrary, if this wage is fixed exogenously, this policy could be optimal also from welfare point of view.