We present a model of aggregate fluctuations in which monopolistic firms face sunk costs to enter the production process and labor markets are characterized by search and matching frictions. Entrants post vacancies and are matched to idle workers. Our specification of sunk costs gives rise to a...

This paper studies the impact of an increase in uncertainty on labor markets where jobs with strong employment protection coexist with temporary contracts. We develop a search and matching model where firms and workers choose the type of contract. The model allows for endogenous separations and...