Shocks and Relationships
In this paper we experimentally study effects of exogenous revenue shocks on long-term relationships between firms and workers. While we find that shocks have no significant effect on wages and a little effect on the duration of relationships, we observe their significant effect on effort levels: given the same wage, the workers exert lower effort in the condition with shocks than in the condition with no shocks. As a result, the presence of shocks in our experiment decreases market efficiency.
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