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A Real-Business-Cycle Model with Reciprocity in Labor Relations and Fiscal Policy: The Case of Bulgaria

Aleksandar Vasilev

Bulgarian Economic Papers (www.bep.bg) from St Kliment Ohridski University of Sofia, Faculty of Economics and Business Administration / Center for Economic Theories and Policies

Abstract: In this paper we introduce reciprocity in labor relations and government sector to investigate how well the real wage rigidity that results out of that arrangement explains business cycle fluctuations in Bulgaria. The reciprocity mechanism described in this paper follows Danthine and Kurmann (2010) and is generally consistent with micro-studies, e.g. Lozev et all. (2011) and Paskaleva (2016), while at the same time comes into contrast with models with efficiency wages of no-shirking type that emphasize the importance of aggregate labor market conditions as the main determinant in wage setting, e.g. Vasilev (2017). Rent-sharing considerations, and worker's own past wages turn out to be the most important aspects of how labor contracting happens. In contrast, aggregate economic conditions, as captured by the employment rate, are not found to be quantitatively important for wage dynamics. Overall, the model with reciprocity and fiscal policy performs well vis-a-vis data, especially along the labor market dimension, and in addition dominates the market-clearing labor market framework featured in the standard RBC model, e.g Vasilev (2009).

Keywords: general equilibrium; reciprocity; gift exchange; efficiency wages; unemployment; fiscal policy; Bulgaria (search for similar items in EconPapers)
JEL-codes: E24 E32 J41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lma, nep-mac and nep-tra
Date: 2017-03, Revised 2017-03
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Citations: View citations in EconPapers (12) Track citations by RSS feed

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Working Paper: A Real-Business-Cycle model with reciprocity in labor relations and fiscal policy: the case of Bulgaria (2017) Downloads
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