An Efficiency-Wage Model with Habit Concerns about Wages
Laszlo Goerke ()
No 13454, IZA Discussion Papers from Institute of Labor Economics (IZA)
We analyse the implications of habit formation relating to wages in a multi-period efficiency-wage model. If employees have such preferences, their existence provides firms with incentives to raise wages and reduce employment over time. Greater intensity does not necessarily have the same consequences, because wage adjustments counteract the initial level impact. The firm's response additionally depends on the wage-dependency of dismissal costs since such costs make an increasing wage profile more attractive and mitigate the effects of greater intensity of habit formation. We further show that short-lived productivity shocks have long-lasting wage and employment consequences. Moreover, habit concerns by firm owners reduce wages.
Keywords: efficiency wages; habit formation; wage profile; wage rigidity (search for similar items in EconPapers)
JEL-codes: D90 J31 J41 (search for similar items in EconPapers)
Pages: 35 pages
New Economics Papers: this item is included in nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published - published as "Habit Formation and Wage Determination" in Managerial and Decision Economics, 2021, 42(1), 61-76
Downloads: (external link)
Working Paper: An Efficiency-Wage Model with Habit Concerns about Wages (2020)
Working Paper: An Efficiency-wage Model with Habit Concerns About Wages (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp13454
Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Access Statistics for this paper
More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().