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Labor market dynamics when effort depends on wage growth comparisons

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Author Info
Croix,David,de la
Palm,Franz
Urbain,Jean-Pierre (METEOR)

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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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Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 016.

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Date of creation: 1996
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Handle: RePEc:dgr:umamet:1996016

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Keywords: mathematical economics and econometrics ;

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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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  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
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  4. Park, Joon Y, 1992. "Canonical Cointegrating Regressions," Econometrica, Econometric Society, vol. 60(1), pages 119-43, January. [Downloadable!] (restricted)
  5. Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January. [Downloadable!] (restricted)
  6. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
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  10. Nelson, Charles R & Startz, Richard, 1990. "The Distribution of the Instrumental Variables Estimator and Its t-Ratio When the Instrument Is a Poor One," Journal of Business, University of Chicago Press, vol. 63(1), pages S125-40, January. [Downloadable!] (restricted)
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  11. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April. [Downloadable!] (restricted)
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  12. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March. [Downloadable!] (restricted)
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  13. W. Bentley Macleod & James M. Malcomson, 1995. "Turnover Costs, Efficiency Wages and Cycles," Annales d'Economie et de Statistique, ADRES, issue 37-38, pages 05, Janvier-J. [Downloadable!]
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  15. Hall, S G, 1986. "An Application of the Granger & Engle Two-Step Estimation Procedure to United Kingdom Aggregate Wage Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 229-39, August.
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  17. Donald W.K. Andrews & Christopher J. Monahan, 1990. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Cowles Foundation Discussion Papers 942, Cowles Foundation, Yale University. [Downloadable!]
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  18. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82. [Downloadable!] (restricted)
  19. de la Croix, David & Lubrano, Michel, 1994. "Are Interest Rates Responsible for Unemployment in the Eighties ? A Bayesian Analysis of Cointegrated Relationship with a Regime Shift," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1994015, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  20. Ogaki, Masao, 1992. "Engel's Law and Cointegration," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 1027-46, October. [Downloadable!] (restricted)
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  21. Benassy, Jean-Pascal, 1995. "Money and wage contracts in an optimizing model of the business cycle," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 303-315, April. [Downloadable!] (restricted)
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  22. Kocherlakota, Narayana R., 1990. "On tests of representative consumer asset pricing models," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 285-304, October. [Downloadable!] (restricted)
  23. Danthine, Jean-Pierre & Donaldson, John B., 1990. "Efficiency wages and the business cycle puzzle," European Economic Review, Elsevier, vol. 34(7), pages 1275-1301, November. [Downloadable!] (restricted)
  24. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  25. Feve, Patrick & Langot, Francois, 1994. "The RBC Models through Statistical Inference: An Application with French Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S11-35, Suppl. De. [Downloadable!] (restricted)
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  27. Lawrence H. Summers, 1989. "Relative Wages, Efficiency Wages, and Keynesian Unemployment," NBER Working Papers 2590, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  28. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
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  1. 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). [Downloadable!]
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