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Reciprocity and matching frictions

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  • Dennis Wesselbaum

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Abstract

The ability of search and matching models to replicate stylized facts—such as volatilities and correlations—has been a center of attraction over the last couple of years. This paper introduces the Akerlof (Q J Econ 97:543–569, 1982 ) fair wage approach into an endogenous separation search and matching model. Within a RBC general equilibrium context, we show that the efficiency wage model outperforms its benchmark Nash bargaining pendant. In particular, the model generates the empirically observed volatilities in response to a productivity shock and replicates a strong Beveridge curve. Furthermore, we derive the Solow condition in a search environment and discuss the interactions of search and efficiency wage frictions. We show that search frictions create a wedge between the optimal wage/effort solution in the search and the competitive equilibrium. The efficiency wage consideration adds an additional margin to the firm's decision problem. As effort varies over the cycle, it changes the firm's optimal response to exogenous disturbances and amplifies the response to shocks. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Dennis Wesselbaum, 2013. "Reciprocity and matching frictions," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 60(3), pages 247-268, September.
  • Handle: RePEc:spr:inrvec:v:60:y:2013:i:3:p:247-268
    DOI: 10.1007/s12232-013-0185-1
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    References listed on IDEAS

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    1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
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    3. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    4. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    5. van Roye, Björn & Wesselbaum, Dennis, 2009. "Capital, endogenous separations, and the business cycle," Kiel Working Papers 1561, Kiel Institute for the World Economy (IfW).
    6. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
    7. David de la Croix & Gregory de Walque & Rafael Wouters, 2006. "Dynamics and monetary policy in a fair wage model of the business cycle," Working Paper Research 98, National Bank of Belgium.
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    10. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
    11. Anna Zaharieva (Chizhova), 2010. "Working Effort and Endogenous Job Separations in Search Equilibrium," Working Paper Series of the Department of Economics, University of Konstanz 2010-06, Department of Economics, University of Konstanz.
    12. 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.
    13. de la Croix, David & de Walque, Gregory & Wouters, Rafael, 2009. "A Note On Inflation Persistence In A Fair Wage Model Of The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 13(05), pages 673-684, November.
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    Cited by:

    1. Martin, Christopher, 2015. "Search Frictions, Efficiency Wages and Equilibrium Unemployment," Department of Economics Working Papers 45163, University of Bath, Department of Economics.
    2. Robert Jump, 2014. "A Fair Wage Explanation of Labour Market Volatility," Studies in Economics 1413, School of Economics, University of Kent.
    3. Marco Fongoni, 2018. "Workers' reciprocity and the (ir)relevance of wage cyclicality for the volatility of job creation," Working Papers 1809, University of Strathclyde Business School, Department of Economics.

    More about this item

    Keywords

    Efficiency wages; Endogenous separations; Search and matching; E32; J41; J64;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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