Marco Fongoni

job market seminar
online

Marco Fongoni

University of Strathclyde
Asymmetric reciprocity and the cyclical behaviour of wages, effort, and job creation
Date(s)
Monday, January 24 2022| 11:30am to 12:45pm
Contact(s)

Frédéric Deroïan: frederic.deroian[at]univ-amu.fr

Abstract

This paper analyses the cyclical behaviour of wages, effort and job creation in a search and matching framework in which workers are characterised by asymmetric reference-dependent reciprocity, and firms set wages by considering the effect that wage changes can have on workers' effort, and therefore on output. The analysis establishes that the cyclical response of workers' effort to wage changes can considerably amplify the magnitude of shocks, independently of the extent of cyclicality of the hiring wage; and that firms' expectations of downward wage rigidity in existing jobs---along with the prospect of output losses due to incumbents' negatively reciprocating wage cuts---increases the volatility of job creation. The model generates outcomes consistent with evidence on hiring and incumbents' wage cyclicality, and provides novel predictions for the difference in the dynamics of effort between new hires and incumbent workers.

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