Efficiency Wages Revisited: The Internal Reference Perspective

Jean-Pierre Danthine () and Andre Kurmann ()

No 4503, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The missing wage rigidity in general equilibrium models of efficiency wages is an artifact of the external wage reference perspective conventionally adopted by the literature. Efficiency wage models based on an internal wage reference perspective are capable of generating strong wage rigidity. We propose a structural model of efficiency wages that is broadly consistent with the reported evidence on fairness in labour relations and rent-sharing. Our model provides a robust explanation for wage rigidity and procyclical effort. It also rationalizes reciprocal behaviour by workers and the observation that firm productivity is a significant predictor of wage setting.

Keywords: efficiency wages; reciprocity; rent-sharing; wage rigidity (search for similar items in EconPapers)
JEL-codes: E24 E32 J50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Date: 2004-08
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Journal Article: Efficiency wages revisited: The internal reference perspective (2006)
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