Working Paper: CEPR ID: DP5174
Authors: Jean-Pierre Danthine; Andre Kurmann
Abstract: We develop and analyse a structural model of efficiency wages founded on reciprocity. Workers are assumed to face an explicit trade-off between the disutility of providing effort and the psychological benefit of reciprocating the gift of a wage offer above some reference level. The model provides a rationale for rent sharing -- a feature that is very much present in the data but absent from previous formulations of the efficiency wage hypothesis. This firm-internal perspective on efficiency wages has important macroeconomic consequences: rent-sharing considerations promote wage rigidity, internal amplification and asymmetric responses to technology and demand shocks.
Keywords: Efficiency wages; Reciprocity; Rent-sharing; Wage rigidity
JEL Codes: E24; E32; J50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher wages (J39) | Increased worker effort (J29) |
| Rent sharing (R21) | Wage rigidity (J31) |
| Technology shocks (O33) | Flexible wage adjustments (J38) |
| Demand shocks (E39) | Counter-cyclical wage behavior (J29) |
| Technology shocks (O33) | Procyclical effort (E32) |
| Demand shocks (E39) | Acyclical effort (E32) |