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Minimally Altruistic Wages and Unemployment in a Matching Model

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  • Julio J. Rotemberg

Abstract

This paper presents a model in which firms recruit both unemployed and employed workers by posting vacancies. Firms act monopsonistically and set wages to retain their existing workers as well as to attract new ones. The model differs from Burdett and Mortensen (1998) in that its assumptions ensure that there is an equilibrium where all firms pay the same wage. The paper analyzes the response of this wage to exogenous changes in the marginal revenue product of labor. The paper finds parameters for which the response of wages is modest relative to the response of employment, as appears to be the case in U.S. data and shows that the insistence by workers that firms act with a minimal level of altruism can be a source of dampened wage responses. The paper also considers a setting where this minimal level of altruism is subject to fluctuations and shows that, for certain parameters, the model can explain both the standard deviations of employment and wages and the correlation between these two series over time.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13755.

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Date of creation: Jan 2008
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Publication status: published as Rotemberg, Julio J., 2008. "Minimally altruistic wages and unemployment in a matching model with monopsony," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages S97-S110, October.
Handle: RePEc:nbr:nberwo:13755

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  21. Collard, Fabrice & de la Croix, David, 1996. "Gift exchange and the business cycle: the fair wage strikes back," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 1997008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Apr 1997.
  22. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers, Centre for Economic Performance, LSE dp0110, Centre for Economic Performance, LSE.
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  24. Levine, David I, 1993. "Fairness, Markets, and Ability to Pay: Evidence from Compensation Executives," American Economic Review, American Economic Association, American Economic Association, vol. 83(5), pages 1241-59, December.
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Cited by:
  1. Jean-Pierre Danthine & André Kurmann, 2010. "The Business Cycle Implications of Reciprocity in Labor Relations," Working Papers 2010-10, Swiss National Bank.

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