The businesscycleimplicationsofreciprocityinlaborrelations

A reciprocity-basedmodelofwagedeterminationisincorporatedintoamodern dynamicgeneralequilibriumframeworkandestimatedonU.S.data.Theestimation revealsthatrent-sharing(betweenworkersandfirms)andwageentitlement(basedon past wages)areimportantdeterminantsofwagesettingforthemodeltofitthe dynamicresponsesofoutput,wagesandinflationtovariousexogenousshocks. Aggregateemploymentconditions(measuringworkers’outsideoption),ontheother hand, arefoundtoplayonlyanegligibleroleforwagesetting.Theseresultsare consistentwithmicro-studiesonreciprocityinlaborrelationsbutcontrastwith traditionalefficiencywagemodelswhichemphasizeaggregatelabormarketvariables as thedeterminantsofwagesetting