Shocking gift exchange

Essi Kujansuu and Arthur Schram

Journal of Economic Behavior & Organization, 2021, vol. 188, issue C, 783-810

Abstract: We study how a gift exchange labor market reacts to the occurrence of negative shocks. One-round shocks may hit either workers’ wages or employers’ earnings (via worker productivity). In our model, other-regarding preferences suffice to predict gift exchange and wages above the competitive level. Wage rigidity is predicted if we add wage illusion and loss aversion. Using a real-effort laboratory experiment, we find support for the model. When there are no shocks, there is gift exchange. After a wage shock we see strong nominal wage rigidity and no impact on workers’ effort, as predicted. Rigidity is also observed after a productivity shock, but here we do observe increases in effort, especially at low wages. The latter is contrary to the model predictions and suggests that productivity shocks alter gift-exchange patterns. We conclude that the wage rigidity often observed in the field can be explained by boundedly rational workers with social preferences.

Keywords: Gift exchange; Shocks; Wage rigidity (search for similar items in EconPapers)
JEL-codes: C91 D90 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:188:y:2021:i:c:p:783-810

DOI: 10.1016/j.jebo.2021.05.032

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