 The firm as a community explaining asymmetric behavior and downward rigidity of wagesChung-cheng Lin and C.C. Yang Journal of Economic Behavior & Organization, 2008, vol. 68, issue 2, 390-400 Abstract: This paper models the firm as a community à la Akerlof [Akerlof, G.A., 1980. A theory of social custom, of which unemployment may be one consequence. Quarterly Journal of Economics 94, 749-775] to account for asymmetric behavior and, in particular, downward rigidity of wages. It is shown that, through social interaction among workers in the firm community, wage cuts can give rise to a large, discontinuous fall in labor productivity (known as "catastrophe"). Furthermore, this large fall in labor productivity will persist or display inertia (known as "hysteresis") even if the wages are restored to the pre-cut level and beyond. Our catastrophe/hysteresis finding with respect to wage cuts can rationalize the downward rigidity of wage behavior and is consistent with the interview evidence of fragile worker morale emphasized by Bewley [Bewley, T.F., 1999. Why Wages Don't Fall During a Recession. Harvard University Press, Cambridge] and others in explaining why employers are sensitive to and refrain from cutting worker pay. Keywords: Wage; rigidity; Firm; community; Catastrophe; Hysteresis (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:jeborg:v:68:y:2008:i:2:p:390-400 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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