Changing Workerfs States and Inefficient Decisions on Turnover

This paper considers an on-the-job search model that includes wage bargaining and employer-employee mismatch. There are two states of workers in relationship to their fit for a particular job, good match versus bad match (mismatch). These states change in accordance with a stochastic process. There are two main results; the first is that the turnover level that workers find optimal is lower than the socially optimal level. The second is that the level of the firmfs entry is not optimal even though the Hosios condition is hold. The first result is clearly distinct from previous studies.