Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93435
Authors: 
Snell, Andy
Thomas, Jonathan
Wang, Zhewei
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4610
Abstract: 
We adapt the models of Menzio and Moen (2010) and Snell and Thomas (2010) to consider a labour market in which firms can commit to wage contracts but cannot commit not to replace incumbent workers. Workers are risk averse, so that there exists an incentive for firms to smooth wages. Real wages respond in a highly non-linear manner to shocks, exhibiting downward rigidity, and magnifying the response of unemployment to negative shocks. We also consider layoffs and show that for a range of shocks labor hoarding occurs while wages are cut. We argue these features are consistent with recent evidence.
Subjects: 
labour contracts
business cycle
unemployment
labour hoarding
downward rigidity
cross-contract restrictions
JEL: 
E32
J41
Document Type: 
Working Paper

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