Discussion Paper Details

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Title: The Macroeconomic Consequences of Reciprocity in Labour Relations

Author(s): Jean-Pierre Danthine and André Kurmann

Publication Date: August 2005

Keyword(s): efficiency wages, reciprocity, rent-sharing and wage rigidity

Programme Area(s): International Macroeconomics

Abstract: 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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Bibliographic Reference

Danthine, J and Kurmann, A. 2005. 'The Macroeconomic Consequences of Reciprocity in Labour Relations'. London, Centre for Economic Policy Research.