Optimal Effort on a Temporary Job

Workers on temporary contracts search for jobs while holding one. This paper models the transition out of temporary employment from the worker’s perspective. A worker on a job with a known end date divides her time between effort, which is rewarded now and raises the quality of the next job, and search, which determines whether the transition happens at all. Because search claims hours that effort would otherwise fill, the worker lets her human capital depreciate on the temporary job and possibly experiences a pay cut at the transition. Yet welfare rises in every parameter of the model. The depreciation and the possible pay cut are the price the worker optimally pays for her chance of a permanent job.