It is well known that, unless worker-firm match quality is controlled for, returns to firm tenure (RTT) estimated directly via reduced form wage (Mincer) equations will be biased. In this paper we argue that even if match quality is properly controlled for there is a further pervasive source of...

Recent dynamic contracting models of downward real wage rigidity with "equal treatment" - newly hired workers cannot price themselves into jobs by undercutting incumbents – imply that real wages are relatively rigid in "bad" times but upwardly flexible during "good" times. We use an...

We consider a labour market with risk averse workers, directed search and asymmetric information in which firms can commit to wage contracts but not to retain workers. The model predicts that in downturns i) firms smooth wages of incumbent workers at a level sufficient to ensure they are not...