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Gift exchange and the business cycle: the fair wage strikes back

Fabrice Collard () and David de la Croix ()

No 1997008, Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We extend the benchmark RBC model amending the technology for efficiency wage considerations. The disutility of effort depends on current, alternative and past wages. Past wages are treated as the worker's past wages (personal norm case) or as the past wages of the society (social norm case). This last model reproduces the high variability of employment, the low variability of wages and the low wage-employment correlation without requiring a second source of impulsions. Moreover the dynamics of wages and employment is adequately captured when norms adjust slowly to the environment. Efficiency wages are thus useful to solve the business cycle puzzle when we allow for inter-temporal wage comparisons.

Keywords: efficiency wage; effort; time-non-separability; RBC; wage sluggishness; business cycle puzzle (search for similar items in EconPapers)
JEL-codes: E24 (search for similar items in EconPapers)
Date: 1996-12-01, Revised 1997-04
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http://sites.uclouvain.be/econ/DP/IRES/9708.pdf (application/pdf)

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Journal Article: Gift Exchange and the Business Cycle: The Fair Wage Strikes Back (2000) Downloads
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