  We study a signaling game between an employer and a potential employee, where
the employee has private information regarding their production capacity. At
the initial stage, the employee communicates a salary claim, after which the
true production capacity is gradually revealed to the employer as the unknown
drift of a Brownian motion representing the revenues generated by the employee.
Subsequently, the employer has the possibility to choose a time to fire the
employee in case the estimated production capacity falls short of the salary.
In this set-up, we use filtering and optimal stopping theory to derive an
equilibrium in which the employee provides a randomized salary claim and the
employer uses a threshold strategy in terms of the conditional probability for
the high production capacity. The analysis is robust in the sense that various
extensions of the basic model can be solved using the same methodology,
including cases with positive firing costs, incomplete information about one's
own type, as well as an additional interview phase.
