 Reciprocity and downward wage rigidityChung-Cheng Lin and C.C. Yang Journal of Macroeconomics, 2010, vol. 32, issue 4, 1155-1168 Abstract: The employment relationship is to a large extent characterized by incomplete contracts, in which workers have a considerable degree of discretion over the choice of their work effort. This discretion at work kicks in the potential importance of "gift exchange" or reciprocity between workers and employers in their employment relationship. Built on the seminal work of Akerlof (1980), this paper adopts a social norm approach to model reciprocity in labor markets and theoretically derives two versions of downward wage rigidity. The first version explains why employers may adopt a high wage policy far above the competitive level. This version is not a novel finding in the existing literature and is mainly served as a benchmark for later comparison in the current paper. Our main contribution lies in the second version in which not only may employers adopt a high wage policy far above the competitive level, but one can also account for the asymmetric behavior of wages and explain why employers are hesitant about wage cuts in the presence of negative shocks. We argue that this second and stronger version of downward wage rigidity has moved the efficiency wage theory a step forward. Keywords: Reciprocity; Downward; wage; rigidity; Social; norm; Efficiency; wage (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:32:y:2010:i:4:p:1155-1168 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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