A Competitive Model of Worker Replacement and Wage Rigidity

Andy Snell, Jonathan Thomas and Zhewei Wang ()

No 4610, CESifo Working Paper Series from CESifo

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.

Keywords: labour contracts; business cycle; unemployment; labour hoarding; downward rigidity; cross-contract restrictions (search for similar items in EconPapers)
JEL-codes: E32 J41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp4610.pdf (application/pdf)

Related works:
Journal Article: A COMPETITIVE MODEL OF WORKER REPLACEMENT AND WAGE RIGIDITY (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4610

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().