We adapt the models of Menzio and Moen (2010) and Snell and Thomas (2010) to consider a labour 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...

Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminate based on a year of entry to a firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions...