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Gift exchange and the business cycle: the fair wage strikes back

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  • Collard, Fabrice

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES); Université de Paris I, MAD)

  • de la Croix, David

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

Abstract

We extend the benchmark RBC model amending the technology for efficiency wage considerations. The disutility of effort depends on current, alternative and past wages. Past wages are treated as the worker's past wages (personal norm case) or as the past wages of the society (social norm case). This last model reproduces the high variability of employment, the low variability of wages and the low wage-employment correlation without requiring a second source of impulsions. Moreover the dynamics of wages and employment is adequately captured when norms adjust slowly to the environment. Efficiency wages are thus useful to solve the business cycle puzzle when we allow for inter-temporal wage comparisons.

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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 1997008.

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Length: 20
Date of creation: 01 Dec 1996
Date of revision: 00 Apr 1997
Handle: RePEc:ctl:louvir:1997008

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Keywords: efficiency wage; effort; time-non-separability; RBC; wage sluggishness; business cycle puzzle;

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