Efficiency Wages Revisited: The Internal Reference Perspective
AbstractThe missing wage rigidity in general equilibrium models of efficiency wages is an artifact of the external wage reference perspective conventionally adopted by the literature. Efficiency wage models based on an internal wage reference perspective are capable of generating strong wage rigidity. We propose a structural model of efficiency wages that is broadly consistent with the reported evidence on fairness in labour relations and rent-sharing. Our model provides a robust explanation for wage rigidity and procyclical effort. It also rationalizes reciprocal behaviour by workers and the observation that firm productivity is a significant predictor of wage setting.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4503.
Date of creation: Aug 2004
Date of revision:
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Other versions of this item:
- Danthine, Jean-Pierre & Kurmann, Andre, 2006. "Efficiency wages revisited: The internal reference perspective," Economics Letters, Elsevier, vol. 90(2), pages 278-284, February.
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-13 (All new papers)
- NEP-DGE-2005-02-13 (Dynamic General Equilibrium)
- NEP-LAB-2005-02-13 (Labour Economics)
- NEP-MAC-2005-02-13 (Macroeconomics)
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