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...

While rigidities in nominal factor costs imply a finite slope in the aggregate supply curve, this paper asks, “Do rigidities increase if there is a more competitive economy?” Several authors claim that real rigidities of monopoly power reinforce nominal rigidities due to price adjustment...