TY  - JOUR
AU  - Menzio,Guido
AU  - Moen,Espen R.
TI  - Worker replacement
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15983
PY  - 2010
Y2  - May 2010
UR  - http://www.nber.org/papers/w15983
L1  - http://www.nber.org/papers/w15983.pdf
N1  - Author contact info:
Guido Menzio
Department of Economics
University of Pennsylvania
467 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
Tel: 773/865-6337
Fax: 215/573-2057
E-Mail: gmenzio@econ.upenn.edu

Espen Moen
Nydalsveien 37
N-0442 Oslo
Norway
E-Mail: espen.r.moen@bi.no
AB  - Consider a labor market in which firms want to insure existing employees against income fluctuations and, simultaneously, want to recruit new employees to fill vacant jobs. Firms can commit to a wage policy, i.e. a policy that specifies the wage paid to their employees as a function of tenure, productivity and other observables. However, firms cannot commit to employ workers. In this environment, the optimal wage policy prescribes not only a rigid wage for senior workers, but also a downward rigid wage for new hires. The downward rigidity in the hiring wage magnifies the response of unemployment to negative shocks.
ER  -