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Reciprocal fairness and gift exchange practices in the labor

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  • Stephane Mahuteau

    (University of Western Sydney)

Abstract

We aim at investigating to what extent reciprocal considerations, exhibited by employers and employees, should lead to stable gift exchange practices in the labor contract, giving rise to non- compensating wage differentials among industries. We use the concept of Sequential Reciprocity Equilibrium developed by Dufwenberg & Kirchsteiger (1998) to incorporate players’ preferences for reciprocity in their utility function. We model the labor relation through a one shot sequential gift giving game between an employer who proposes a wage given the employee’s profitability level as exogenous and an employee who chooses his level of effort. We show that successful gift exchange practices may arise if both players are actually motivated by reciprocity. Even though intentions act as a catalyst of opportunistic behaviors, the respect of the equity norm makes mutual cooperation more likely. We propose a direct evaluation of the determinants of gift exchange practices between French employers and employees, estimating the probabilities to observe productivity increases following upon the settlement of rent-sharing agreements in the firm. Whether we estimate the probability for the employer to propose a rent-sharing agreement or the probability for the employees to raise their effort, we show that there exists an endogeneity bias related to the variable chosen as proxy to express the agents’ perception of their opponent’s fairness. This result gives support to the hypothesis that French employers and employees’ decisions are directly influenced by reciprocity concerns. Our results give support to the Akerlof & Yellen’s fair wage effort hypothesis as an explanation of the persistence of non-compensating wage differentials.

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File URL: http://128.118.178.162/eps/lab/papers/0211/0211004.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Labor and Demography with number 0211004.

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Length: 31 pages
Date of creation: 20 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwpla:0211004

Note: Type of Document - pdf; prepared on IBM PC - PC; to print on HP/PostScript/Franciscan monk; pages: 31 ; figures: included
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Web page: http://128.118.178.162

Related research

Keywords: employment relationship; gift exchange game; reciprocity; rent sharing;

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References

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  3. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
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Blog mentions

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  1. What determines wages?
    by chris dillow in Stumbling and Mumbling on 2007-05-25 07:46:00
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Cited by:
  1. De la Rica Goiricelaya, Sara & Card, David E., 2004. "The effect of firm-level contracts on the structure of wages: evidence from matched employer-employee data," DFAEII Working Papers 2004-06, University of the Basque Country - Department of Foundations of Economic Analysis II.

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