Changing Job: A Real Option Analysis
Fouad K. Moussa, Hung Nguyen, Anh Duc Ngo

Changing job is the strategy for a worker to maximize his earnings during the life time. To optimally implement this strategy, he has to spend an amount of searching costs, scans over the labor market, and eventually makes an optimal decision on when and at which searching costs he is willing to move his current job to a new one. Dominated by the traditional net present value approach, the existing literature suggests that a worker accepts a new job offer if the net potential earnings exceed the current earnings. However, this decision rule is not applicable if we consider the decision to change jobs as an option. So, the decision rule must be based on pricing this option. This paper concerns with developing a theoretical option based model of job changing, and validating this model with an empirical application. It came up with three main findings: (i) real option approach works well as modeling job changing decision; (ii) the optimal solution of the model sensitively responds to the changes in parameters; and (iii) the within industry mobility demands higher critical earnings gap the cross industry mobility does.

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