Asymmetric Reciprocity and the Cyclical Behavior of Wages, Effort, and Job Creation

Marco Fongoni

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 3, 52-89

Abstract: This paper develops a search and matching framework in which workers are characterized by asymmetric reference-dependent reciprocity and firms set wages by considering the effect that these can have on workers' effort and, therefore, on output. The cyclical response of effort to wage changes can considerably amplify shocks, independently of the cyclicality of the hiring wage, which becomes irrelevant for unemployment volatility, and firms' expectations of downward wage rigidity in existing jobs increases the volatility of job creation. The model is consistent with evidence on hiring and incumbents' wage cyclicality, and provides novel predictions on the dynamics of effort.

JEL-codes: E24 E32 J23 J31 J41 J64 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Asymmetric Reciprocity and the Cyclical Behaviour of Wages, Effort and Job Creation (2024)
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DOI: 10.1257/mac.20200321

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