DP8997 Reference Dependence and Labor-Market Fluctuations

Author(s): Kfir Eliaz, Ran Spiegler
Publication Date: May 2012
Keyword(s): Negative-Reciprocity, Reference-Dependence, Search and Matching, Shimer Puzzle, Social Preferences, Wage Rigidity
JEL(s): C72, D03, E24, E32, J64
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8997

We incorporate reference-dependent preferences into a search-and-matching model of the labor market, in which firms have all the bargaining power and productivity follows an AR(1) process. Motivated by Akerlof (1982) and Bewley (1999), we assume that existing workers are willing to exert unobserved,