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The business cycle implications of reciprocity in labor relations

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  • Danthine, Jean-Pierre
  • Kurmann, André

Abstract

A reciprocity-based model of wage determination is incorporated into a modern dynamic general equilibrium framework and estimated on U.S. data. The estimation reveals that rent-sharing (between workers and firms) and wage entitlement (based on past wages) are important determinants of wage setting for the model to fit the dynamic responses of output, 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 for wage setting. These results are consistent with micro-studies on reciprocity in labor relations but contrast with traditional efficiency wage models which emphasize aggregate labor market variables as the determinants of wage setting.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 57 (2010)
Issue (Month): 7 (October)
Pages: 837-850

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Handle: RePEc:eee:moneco:v:57:y:2010:i:7:p:837-850

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Web page: http://www.elsevier.com/locate/inca/505566

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Cited by:
  1. Danthine, Jean-Pierre & Kurmann, André, 2010. "The business cycle implications of reciprocity in labor relations," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 837-850, October.
  2. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral Economics and Macroeconomic Models," Finance and Economics Discussion Series 2014-43, Board of Governors of the Federal Reserve System (U.S.).
  3. Andrea Vaona, 2013. "Inflation gifts and endogenous growth through learning-by-doing," Working Papers 09/2013, University of Verona, Department of Economics.
  4. Matthieu Chemin & Joost DeLaat & André Kurmann, 2011. "Reciprocity in Labor Relations: Evidence from a Field Experiment with Long-Term Relationships," Cahiers de recherche 1127, CIRPEE.

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