The Macroeconomic Consequences of Reciprocity in Labor Relations

We develop and analyze 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 potentially important macroeconomic consequences: rent-sharing considerations promote wage rigidity, internal amplification and differential responses to technology and demand shocks. Copyright The editors of the "Scandinavian Journal of Economics" 2008 .