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The Business Cycle Implications of Reciprocity in Labor Relations

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  • Jean-Pierre Danthine
  • André Kurmann

Abstract

We develop a reciprocity-based model of wage determination and incorporate it into a modern dynamic general equilibrium framework. We estimate the model and find that, among potential determinants of wages, rent-sharing (between workers and firms) and wage entitlement (based on wages earned in the past) are important to fit the dynamic responses of output, wages and inflation to various exogenous shocks. Aggregate employment conditions (measuring workers' outside option), on the other hand, are found to play only a negligible role for wage setting. These results are broadly consistent with micro-studies on reciprocity in labor relations but contrast with traditional efficiency wage models which emphasize aggregate labor market variables as the main determinant of wage setting.

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Paper provided by Swiss National Bank in its series Working Papers with number 2010-10.

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Length: 43 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:snb:snbwpa:2010-10

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Keywords: Efficiency Wages; Reciprocity; Estimated DSGE Models;

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Cited by:
  1. Jean-Pierre DANTHINE & André KURMANN, 2007. "The Business Cycle Implications of Reciprocity in Labor Relations," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 07.12, Université de Lausanne, Faculté des HEC, DEEP.
  2. Andrea Vaona, 2013. "Inflation gifts and endogenous growth through learning-by-doing," Working Papers 09/2013, University of Verona, Department of Economics.
  3. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral Economics and Macroeconomic Models," Finance and Economics Discussion Series 2014-43, Board of Governors of the Federal Reserve System (U.S.).
  4. Matthieu Chemin & Joost DeLaat & André Kurmann, 2011. "Reciprocity in Labor Relations: Evidence from a Field Experiment with Long-Term Relationships," Cahiers de recherche 1127, CIRPEE.

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