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Labor market dynamics when effort depends on wage growth comparisons

Author

Listed:
  • Jean-Pierre Urbain

    (University of Maastricht, Department of Quantitative Economics, P.O. Box 616, 6200 MD Maastricht, The Netherlands)

  • Franz Palm

    (University of Maastricht, Department of Quantitative Economics, P.O. Box 616, 6200 MD Maastricht, The Netherlands)

  • David de la Croix

    (National Fund for Scientific Research and University of Louvain, Department of Economics, Place Montesquieu 3, B-1348 Louvain-la-Neuve)

Abstract

We present an efficiency wage model in which workers' disutility of effort depends on the level and on the growth rate of their wage relative to an alternative wage. Using data for four countries (US, UK, FR, GY), the implications of the model are examined and are found to be in accordance with the information in the non-stationary data. The restrictions implied by the model dynamics are not rejected by the data and the structural parameters are found to be constant through time. One interesting result is that the workers' disutility of effort depends less on relative wages growth and more on relative wage levels in the US than in the three European countries analyzed.

Suggested Citation

  • Jean-Pierre Urbain & Franz Palm & David de la Croix, 2000. "Labor market dynamics when effort depends on wage growth comparisons," Empirical Economics, Springer, vol. 25(3), pages 393-419.
    • Handle: RePEc:spr:empeco:v:25:y:2000:i:3:p:393-419
    Note: received: September 1998 / Final version accepted: November 1999
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    Cited by:

    1. David Croix, 2001. "Standard-of-Living Aspirations and Economic Cycles," International Economic Association Series, in: Jacques Drèze (ed.), Advances in Macroeconomic Theory, chapter 13, pages 255-282, Palgrave Macmillan.
    2. Xavier Raurich & Valeri Sorolla, 2015. "A General Framework for Growth Models with Non-Competitive Labor and Product Markets and Disequilibrium Unemployment," Working Papers 369, Barcelona School of Economics.
    3. Tripier, Fabien, 2006. "Sticky prices, fair wages, and the co-movements of unemployment and labor productivity growth," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2749-2774, December.
    4. Drakopoulos, Stavros A., 2007. "Comparison Wage in Trade Union Decision Making," MPRA Paper 46287, University Library of Munich, Germany.
    5. Laszlo Goerke, 2021. "Habit formation and wage determination," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 61-76, January.
    6. Marco Guerrazzi, 2020. "Efficiency-Wage Competition: What Happens as the Number of Players Increases?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 6(1), pages 13-35, March.
    7. Xavier Raurich & Valeri Sorolla, "undated". "Unemployment and Wage Formation in a Growth Model with Public Capital," UFAE and IAE Working Papers 508.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).

    More about this item

    Keywords

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    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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