Labor Market Dynamics When Effort Depends on Wage Growth Comparisons

We present an efficiency wage model in which workers' disutility of 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 and the structural parameters are found to be constant through time. One interesting result is that the workers' disutility of effort depends less on relative wages growth and more on relative wage levels in the US than in the three European countries analyzed