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

  • Fabrice Collard

    (CEPREMAP)

  • David de la Croix

    (Universite Catholique de Louvain-la-Neuve)

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)

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File URL: http://dx.doi.org/10.1006/redy.1999.0075
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 3 (2000)
Issue (Month): 1 (January)
Pages: 166-193

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Handle: RePEc:red:issued:v:3:y:2000:i:1:p:166-193
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