This paper explores wage-setting in the presence of asymmetric information. Firms know their own productivity, while workers only know the distribution of productivity in the economy. Although there is unemployment in equilibrium, the labor market is competitive in the sense of Moen (1997):...

This paper extends Mortensen and Pissarides (1994) by introducing workers' risk aversion. In doing so, it provides a framework within which to study jointly the optimal supply of job security and the allocational and welfare consequences of government intervention in excess of private...