Labor–market search and real business cycles: Nash bargaining vs. fair wage

This paper modifies the standard labor market search model with Nash bargaining for a wage determination scheme which relies on efficiency wage theories. More precisely, the equilibrium wage rests on the gift-exchange motivation. It is shown that the combination of search frictions and fair wage hypothesis allows a business cycle model to replicate the Dunlop–Tarshis observation without requiring a second source of impulses.