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Gift Exchange and the Business Cycle: The Fair Wage Strikes Back

Author

Listed:
  • Fabrice Collard

    (CEPREMAP)

  • David de la Croix

    (Universite Catholique de Louvain-la-Neuve)

Abstract

We extend the benchmark real business cycle model amending technology for fair wage considerations. Effort depends on current, alternative and past wages. Past wages are treated as the worker's past wages (personal norm) or as the past wages of the society (social norm). 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. Wages and employment dynamics are adequately captured when norms adjust slowly to the environment. Fair wages are thus useful to solve the business cycle puzzle when we allow for inter-temporal wage comparisons. (Copyright: Elsevier)

Suggested Citation

  • Fabrice Collard & David de la Croix, 2000. "Gift Exchange and the Business Cycle: The Fair Wage Strikes Back," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 166-193, January.
    • Handle: RePEc:red:issued:v:3:y:2000:i:1:p:166-193
    DOI: 10.1006/redy.1999.0075
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    More about this item

    Keywords

    efficiency wage; effort; time-nonseparability; RBC; wage sluggishness; business cycle puzzle;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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