Employment Duration and Resistance to Wage Reductions: Experimental Evidence
AbstractOne of the long-standing questions in economics is whether or not wages will fall sufficiently in recessions so as to avoid increases in unemployment. Put differently, if the competitive market wage declines, will employers simply force their employees to accept lower wages as well? As an alternative to reviewing statistical data, we have performed an experiment with a lower competitive wage in the second phase of an employment relationship that is known and can thus be (rationally) anticipated by both parties. The experiment casts two subjects in the highly stylized roles of employer and employee. For the hypothesis that employers will not lower wages correspondingly and that employees will resist such wage cuts we find at most mild evidence. Instead, the experimental results can be more fruitfully interpreted in terms of an “ultimatum game”, in which surplus between employers and employees is shared. In this view, wages and their lack of decline are simply the mechanical tool for accomplishing this split.
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Bibliographic InfoArticle provided by Institute of SocioEconomics in its journal Homo Oeconomicus.
Volume (Year): 22 (2005)
Issue (Month): ()
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Other versions of this item:
- Burda, Michael C. & Güth, Werner & Kirchsteiger, Georg & Uhlig, Harald, 1998. "Employment duration and resistance to wage reductions: Experimental evidence," SFB 373 Discussion Papers 1998,74, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Burda, M. & Güth, W. & Kirchsteiger, G. & Uhlig, H.F.H.V.S., 1998. "Employment Duration and Resistance to Wage Reductions: Experimental Evidence," Discussion Paper 1998-073, Tilburg University, Center for Economic Research.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J - Labor and Demographic Economics
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