I test the importance of wage rigidities from long-term contracts by observing how employment behaves when firms and workers recontract. If rigidities are important then we should observe employment adjusting after recontracting to undo movements in employment during the past contract that were...

We consider a matching model of employment with wages that are flexible for new hires, but sticky within matches. We depart from standard treatments of sticky wages by allowing effort to respond to the wage being too high or low. Shimer (2004) and others have illustrated that employment in the...