A COMPETITIVE MODEL OF WORKER REPLACEMENT AND WAGE RIGIDITY. (25th June 2014)

• Record Type: Journal Article
• Authors: Snell, Andy; Thomas, Jonathan P.; Wang, Zhewei
• Is Part Of: Economic inquiry. Volume 53:Number 1(2015:Jan.)
• Page Start: 419
• Page End: 430
• Publication Date: 2014-06-25
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/ecin.12110
• Languages: English
• ISSNs: 0095-2583

Abstract

<abstract abstract-type="main" id="ecin12110-abs-0001"> <title>Abstract</title> <p id="ecin12110-para-0001"> <italic>We adapt the models of Menzio and Moen (2010) and Snell and Thomas (2010) to consider a labor 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 nonlinear 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</italic>. (<italic>JEL</italic> E32, J41)</p> </abstract>