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DP5174
The Macroeconomic Consequences of Reciprocity in Labour Relations
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Publication Date:
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August 2005
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Link to this Page:
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www.cepr.org/pubs/dps/DP5174.asp
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We develop and analyse a structural model of efficiency wages founded on reciprocity. Workers are assumed to face an explicit trade-off between the disutility of providing effort and the psychological benefit of reciprocating the gift of a wage offer above some reference level. The model provides a rationale for rent sharing -- a feature that is very much present in the data but absent from previous formulations of the efficiency wage hypothesis. This firm-internal perspective on efficiency wages has important macroeconomic consequences: rent-sharing considerations promote wage rigidity, internal amplification and asymmetric responses to technology and demand shocks.
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