The degree of uncertainty in a worker's productivity is affected by many factors, such as worker-employer matching, technology, and macroeconomic conditions. Not surprisingly, uncertainty in labor productivity (ULP) varies across firms, industries, and economies. The question arises: How do...

Up-or-out contracts can improve human capital investment incentives but lead to suboptimal worker-employer separation. When job matching uncertainty is large relative to the return to human capital investment, spot contracts Pareto dominate up-or-out contracts. Otherwise, up-or-out contracts are...