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The Business Cycle Implications of Reciprocity in Labor Relations

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  • Jean-Pierre Danthine

Abstract

We develop a reciprocity-based model of wage determination and incorporate it into a modern dynamic general equilibrium framework. We estimate the model and find that, among potential determinants of wages, rent-sharing (between workers and firms) and wage entitlement (based on wages earned in the past) are important to fit the dynamic responses of output, wages and inflation to various exogenous shocks. Aggregate employment conditions (measuring workers' outside option), on the other hand, are found to play only a negligible role for wage setting. These results are broadly consistent with micro-studies on reciprocity in labor relations but contrast with traditional efficiency wage models which emphasize aggregate labor market variables as the main determinant of wage setting.

Suggested Citation

  • Jean-Pierre Danthine, 2010. "The Business Cycle Implications of Reciprocity in Labor Relations," Working Papers 2010-10, Swiss National Bank.
  • Handle: RePEc:snb:snbwpa:2010-10
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    File URL: https://www.snb.ch/en/publications/research/working-papers/2010/working_paper_2010_10
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    References listed on IDEAS

    as
    1. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    2. Michael Dotsey & Robert G. King, 2006. "Pricing, Production, and Persistence," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 893-928, September.
    3. 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(5), pages 673-684, November.
    4. Danthine, Jean-Pierre & Kurmann, André, 2010. "The business cycle implications of reciprocity in labor relations," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 837-850, October.
    5. Kurmann, Andre, 2007. "VAR-based estimation of Euler equations with an application to New Keynesian pricing," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 767-796, March.
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    More about this item

    Keywords

    Efficiency Wages; Reciprocity; Estimated DSGE Models;
    All these keywords.

    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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