The Business Cycle Implications of Reciprocity in Labor Relations

Jean-Pierre Danthine and André Kurmann

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: We develop a reciprocity-based model of wage determination and incorporate it into a modern dynamic general equilibrium framework. We estimate the model and find that, among potential determinants of wage policy, rent-sharing (between workers and firms) and a measure of wage entitlement are critical to fit the dynamic responses of hours, wages and inflation to various exogenous shocks. Aggregate employment conditions (measuring workers' outside option), on the other hand, are found to play only a negligible role in wage setting. These results are broadly consistent with micro-studies on reciprocity in labor relations but contrast with traditional efficiency wage models which emphasize aggregate labor market variables as the main determinant of wage setting. Overall, the empirical fit of the estimated model is at least as good as the fit of models postulating nominal wage contracts. In particular, the reciprocity model is more successful in generating the sharp and significant fall of inflation and nominal wage growth in response to a neutral technology shock.

Keywords: efficiency wages; reciprocity; estimated DSGE models (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 E52 J50 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2007-11
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.hec.unil.ch/deep/textes/07.12.pdf (application/pdf)

Related works:
Journal Article: The business cycle implications of reciprocity in labor relations (2010)
Working Paper: The Business Cycle Implications of Reciprocity in Labor Relations (2010)
Working Paper: The Business Cycle Implications of Reciprocity in Labour Relations (2007)
Working Paper: The Business Cycle Implications of Reciprocity in Labor Relations (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:07.12

Access Statistics for this paper

More papers in Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie Université de Lausanne, Faculté des HEC, Département d’économie, Internef, CH-1015 Lausanne. Contact information at EDIRC.
Bibliographic data for series maintained by Christina Seld ().