Abstract
In this paper, we demonstrate that sorting considerations alone generate steep wage-tenure profiles, high turnover rates of newly hired workers, an increase in the variance of wages with seniority, and mandatory retirement rules. We show that `excessive monitoring' is sometimes necessary to deter applications from low productivity workers. We derive conditions under which firms randomly test workers, as well as conditions under which firms retain some workers that fail its test. Finally, we show that competition for workers can lower total output.
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