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Fairness as a source of hysteresis in employment and relative wages

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Author Info
Skott, Peter () (Department of Economics, University of Aarhus, Denmark)

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Abstract

This paper analyses the influence of norms of fairness on wage formation. Fairness is defined by `real-wage' and `relative-wage' norms that relate wage offers to workers' own current wage and to the wages of other groups of workers, and, to avoid shirking, firms pay fair wages. The wage norms change endogenously, and the result is hysteresis with respect to both employment and the distribution of wages. An extension of the model that allows `induced overeducation' may help explain trends in wage inequality.

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Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2003-6.

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Handle: RePEc:aah:aarhec:2003-6

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Related research
Keywords: Wage norms; fairness; hysteresis; overeducation; wage inequality; unemployment;

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Find related papers by JEL classification:
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: 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
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
  2. Shafir, Eldar & Diamond, Peter & Tversky, Amos, 1997. "Money Illusion," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 341-74, May.
  3. Daly, Mary C. & Buchel, Felix & Duncan, Greg J., 2000. "Premiums and penalties for surplus and deficit education: Evidence from the United States and Germany," Economics of Education Review, Elsevier, vol. 19(2), pages 169-178, April. [Downloadable!] (restricted)
  4. Skott, P., 1990. "Efficiency Wages, Mark-Up Pricing And Effective Demand," Papers 9026, Tilburg - Center for Economic Research.
  5. Paul Auerbach & Peter Skott, . "Skill Asymmetries, Increasing Wage Inequality and Unemployment," Economics Working Papers 2000-18, School of Economics and Management, University of Aarhus. [Downloadable!]
  6. Peter Skott, . "Wage Formation and the (Non-)Existence of the NAIRU," Economics Working Papers 1998-16, School of Economics and Management, University of Aarhus. [Downloadable!]
  7. David R. Howell, 2002. "Increasing Earnings Inequality and Unemployment in Developed Countries: Markets, Institutions and the "Unified Theory"," SCEPA Working Papers 2002-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School. [Downloadable!]
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    Other versions:
  9. Blanchard, Olivier & Katz, Lawrence F, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter. [Downloadable!] (restricted)
    Other versions:
  10. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March. [Downloadable!] (restricted)
  11. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1991. "The Endowment Effect, Loss Aversion, and Status Quo Bias: Anomalies," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter. [Downloadable!] (restricted)
  12. Edward N. Wolff, 1998. "Technology and the Demand for Skills," Macroeconomics 9810004, EconWPA. [Downloadable!]
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  19. Hersch, Joni, 1991. "Education Match and Job Match," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 140-44, February. [Downloadable!] (restricted)
  20. F Green & Steven McIntosh & Anna Vignoles, 1999. "Overeducation and Skills - Clarifying the Concepts," CEP Discussion Papers dp0435, Centre for Economic Performance, LSE.
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  22. Grubb, David B & Jackman, Richard A & Layard, Richard G, 1982. "Causes of the Current Stagflation," Review of Economic Studies, Blackwell Publishing, vol. 49(5), pages 707-30, Special I. [Downloadable!] (restricted)
  23. Skott, Peter, . "Distributional consequences of neutral shocks to economic activity in a model with efficiency wages and overeducation," Economics Working Papers 2003-5, School of Economics and Management, University of Aarhus. [Downloadable!]
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    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Peter Skott, 2008. "Theoretical and empirical shortcomings of the Kaleckian investment function," Working Papers 2008-11, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
  2. Holler, Manfred & Skott, Peter, . "The importance of setting the agenda," Economics Working Papers 2003-8, School of Economics and Management, University of Aarhus. [Downloadable!]
  3. Amitava K. Dutt & Peter Skott, 2005. "Keynesian Theory and the AD-AS Framework: A Reconsideration," Working Papers 2005-11, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
  4. Peter Skott, 2005. "Wage inequality and overeducation in a model with efficiency wages," Working Papers 2005-06, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
    Other versions:
  5. Peter Skott & Takeshi Nakatani, 2006. "Japanese growth and stagnation: a Keynesian perspective," Working Papers 2006-04, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
    Other versions:
  6. Goergens, Tue & Paldam, Martin & Würtz, Allan, . "How does Public Regulation affect Growth?," Economics Working Papers 2003-14, School of Economics and Management, University of Aarhus. [Downloadable!]
  7. Frederick Guy & Peter Skott, 2007. "Information and communications technologies,coordination and control, and the distribution of income," Working Papers 2007-11, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
  8. Peter Skott & Frederick Guy, 2005. "Power-Biased Technological Change and the Rise in Earnings Inequality," Working Papers 2005-17, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
    Other versions:
  9. Soon Ryoo & Peter Skott, 2008. "Financialization in Kaleckian economies with and without labor constraints," Working Papers 2008-05, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
    Other versions:
  10. Jensen, Kraen Blume & Ejrnaes, Mette & Nielsen, Helena Skyt & Würtz, Allan, . "Self-Employment among Immigrants: A Last Resort?," Economics Working Papers 2003-13, School of Economics and Management, University of Aarhus. [Downloadable!]
    Other versions:
  11. John D. Burger & Stephen J.K. Walters, 2006. "Testing Fair Wage Theory," Working Papers 0623, International Association of Sports Economists. [Downloadable!]
  12. Peter Skott & Soon Ryoo, 2007. "Macroeconomic implications of financialization," Working Papers 2007-08, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
    Other versions:
  13. Peter Skott & Paul Auerbach, 2004. "Wage inequality and skill asymmetries," Working Papers 2004-03, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
  14. Peter Skott, 2008. "Growth, instability and cycles: Harrodian and Kaleckian models of accumulation and income distribution," Working Papers 2008-12, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
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