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Labor market dynamics when effort depends on wage growth comparisons

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  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Palm, Franz

    (University of Limburg, Department of Quantitative Economics, Maastricht)

  • Urbain, Jean-Pierre

    (University of Limburg, Department of Quantitative Economics, Maastricht)

Abstract

We present an efficiency wage model in which workers' effort depends on the level and on the growth rate of their wage relative to an alternative wage. Using data for four countries (US, UK, FR, GY), the implications of the model are examined and are found to be in accordance with the information in the non-stationary data. The restrictions implied by the model dynamics are not rejected by the data. Moreover the structural parameters are found to be constant through time, indicating that, although very simple, the model is likely to be robust to the Lucas critique. One interesting result is that the workers' effort depends less on relative wages growth and more on relative wage levels in the US than in the three European countries analyzed.

Suggested Citation

  • de la Croix, David & Palm, Franz & Urbain, Jean-Pierre, 1996. "Labor market dynamics when effort depends on wage growth comparisons," LIDAM Discussion Papers IRES 1996019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Sep 1996.
    • Handle: RePEc:ctl:louvir:1996019
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    Cited by:

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    2. Marco Guerrazzi, 2020. "Efficiency-Wage Competition: What Happens as the Number of Players Increases?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 6(1), pages 13-35, March.
    3. Xavier Raurich & Valeri Sorolla, "undated". "Unemployment and Wage Formation in a Growth Model with Public Capital," UFAE and IAE Working Papers 508.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    4. 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.
    5. Laszlo Goerke, 2021. "Habit formation and wage determination," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 61-76, January.
    6. David Croix, 2001. "Standard-of-Living Aspirations and Economic Cycles," International Economic Association Series, in: Jacques Drèze (ed.), Advances in Macroeconomic Theory, chapter 13, pages 255-282, Palgrave Macmillan.
    7. Xavier Raurich & Valeri Sorolla, 2008. "A General Framework for Growth Models with Non-Competitive Labor and Product Markets and Disequilibrium Unemployment," Working Papers 369, Barcelona School of Economics.

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    More about this item

    Keywords

    efficiency wages; effort function; cointegration; GMM;
    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

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