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Labor market dynamics when effort depends on wage growth comparisons

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Author Info

  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Palm, Franz

    (University of Limburg, Department of Quantitative Economics, Maastricht)

  • Urbain, Jean-Pierre

    (University of Limburg, Department of Quantitative Economics, Maastricht)

Abstract

We present an efficiency wage model in which workers' effort depends on the level and on the growth rate of their wage relative to an alternative wage. Using data for four countries (US, UK, FR, GY), the implications of the model are examined and are found to be in accordance with the information in the non-stationary data. The restrictions implied by the model dynamics are not rejected by the data. Moreover the structural parameters are found to be constant through time, indicating that, although very simple, the model is likely to be robust to the Lucas critique. One interesting result is that the workers' effort depends less on relative wages growth and more on relative wage levels in the US than in the three European countries analyzed.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1996019.

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Length: 23
Date of creation: 01 Apr 1996
Date of revision: 00 Sep 1996
Handle: RePEc:ctl:louvir:1996019

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Keywords: efficiency wages; effort function; cointegration; GMM;

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References

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Cited by:
  1. Xavier Raurich & Valeri Sorolla, 2008. "A General Framework for Growth Models with Non-Competitive Labor and Product Markets and Disequilibrium Unemployment," Working Papers 369, Barcelona Graduate School of Economics.
  2. Drakopoulos, Stavros A., 2007. "Comparison Wage in Trade Union Decision Making," MPRA Paper 46287, University Library of Munich, Germany.
  3. Tripier, Fabien, 2006. "Sticky prices, fair wages, and the co-movements of unemployment and labor productivity growth," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2749-2774, December.
  4. Xavier Raurich & Valeri Sorolla, . "Unemployment and Wage Formation in a Growth Model with Public Capital," UFAE and IAE Working Papers 508.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).

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