IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A Fair Wage Model of Unemployment with Inertia in Fairness Perceptions

  • Monica Correa-Lopez
  • George Choullarakis
Registered author(s):

    Theories of psychology and empirical evidence suggest that the reference transactions against which workers judge fairness exhibit inertia. This paper shows that a fair-wage model with inertia in fairness perceptions provides a plausible explanation for the observed negative correlation between changes in productivity growth and equilibrium unemployment over the medium run, a stylized fact that remains elusive to most other classes of models. It also shows that skillbiased productivity shocks and shocks to workers’ taste for equal pay have permanent effects on unemployment and the skill premium. Thus, skill-biased shocks to productivity increase unemployment among the lowskilled while, if high-skilled workers are less inequity-averse, they reduce unemployment among the high-skilled.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.bbvaresearch.com/wp-content/uploads/migrados/WP_1203_tcm348-306413.pdf
    Download Restriction: no

    Paper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 1203.

    as
    in new window

    Length: 25 pages
    Date of creation: Mar 2012
    Date of revision:
    Handle: RePEc:bbv:wpaper:1203
    Contact details of provider: Web page: https://www.bbvaresearch.com/

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Gordon Menzies & Daniel John Zizzo, 2004. "Inferential Expectations," Economics Series Working Papers 187, University of Oxford, Department of Economics.
    2. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
    3. Danthine, Jean-Pierre & Kurmann, Andre, 2005. "The Macroeconomic Consequences of Reciprocity in Labour Relations," CEPR Discussion Papers 5174, C.E.P.R. Discussion Papers.
    4. Botond Koszegi & Matthew Rabin, 2005. "A Model of Reference-Dependent Preferences," Levine's Bibliography 784828000000000341, UCLA Department of Economics.
    5. Hartmut Egger & Udo Kreickemeier, 2009. "Redistributing Gains from Globalisation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 765-788, December.
    6. Schlicht, Ekkehart, 1998. "On Custom in the Economy," OUP Catalogue, Oxford University Press, number 9780198292241, March.
    7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
    8. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," NBER Working Papers 8421, National Bureau of Economic Research, Inc.
    9. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November.
    10. Andreas Hornstein & Per Krussell & Giovanni L. Violante, 2004. "The effects of technical change on labor market inequalities," Working Paper 04-08, Federal Reserve Bank of Richmond.
    11. Laurence Ball & N Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Economics Working Paper Archive 475, The Johns Hopkins University,Department of Economics.
    12. Grubb, David B & Jackman, Richard A & Layard, Richard G, 1982. "Causes of the Current Stagflation," Review of Economic Studies, Wiley Blackwell, vol. 49(5), pages 707-30, Special I.
    13. Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    14. Fehr, Ernst & Götte, Lorenz & Zehnder, Christian, 2008. "A Behavioral Account of the Labor Market: The Role of Fairness Concerns," IZA Discussion Papers 3901, Institute for the Study of Labor (IZA).
    15. Blinder, Alan S & Choi, Don H, 1990. "A Shred of Evidence on Theories of Wage Stickiness," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1003-15, November.
    16. N. Gregory Mankiw & Ricardo Reis, 2007. "Sticky Information in General Equilibrium," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 603-613, 04-05.
    17. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    18. Francesco Caselli & Wilbur John Coleman II, 2002. "The U.S. Technology Frontier," American Economic Review, American Economic Association, vol. 92(2), pages 148-152, May.
    19. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
    20. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
    21. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
    22. Gary Charness & Peter Kuhn, 2007. "Does Pay Inequality Affect Worker Effort? Experimental Evidence," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 693-723.
    23. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May.
    24. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
    25. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
    26. Caselli, Francesco & Coleman II, Wilbur John, 2000. "The World Technology Frontier," CEPR Discussion Papers 2584, C.E.P.R. Discussion Papers.
    27. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bbv:wpaper:1203. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ANGIE CAROLINA SUAREZ SALAZAR)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.