We analyze a labor market with search and matching frictions where wage setting is controlled by a monopoly union. We take a benevolent view of the union in assuming it to care equally about employed and unemployed workers and we assume, moreover, that it is fully rational, thus taking job...

In this paper I develop a tractable extension of a Mortensen-Pissarides style matching model that allows for risk averse workers with limited ability to smooth consumption.1 I show that this leads to a form of equilibrium wage rigidity. This rigidity arises because the inability of workers to...

Economists face difficulties explaining the strong cyclicality of US unemployment. This paper contributes both by developing modeling tools and evaluating a potentially important explanation. The paper develops a parsimonious equilibrium model of job search with aggregate productivity shocks,...

Recent research seeking to explain the strong cyclicality of US unemployment emphasizes the role of wage rigidity. This paper proposes a micro-founded model of wage rigidity – an equilibrium business cycle model of job search, where risk neutral firms post optimal long-term contracts to...