NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Ran Spiegler

School of Economics
Tel Aviv University
Tel Aviv 69978
Israel

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NBER Working Papers and Publications

June 2013Reference Dependence and Labor Market Fluctuations
with Kfir Eliaz
in NBER Macroeconomics Annual 2013, Volume 28, Jonathan A. Parker and Michael Woodford, editors
We incorporate reference-dependent worker behavior into a search-matching model of the labor market, in which firms have all the bargaining power and productivity follows a log-linear AR(1) process. Motivated by Akerlof (1982) and Bewley (1999), we assume that existing workers’ output falls stochastically from its normal level when their wage falls below a "reference point", which (following Köszegi and Rabin 2006) is equal to their lagged-expected wage. We formulate the model game-theoretically and show that it has a unique subgame perfect equilibrium that exhibits the following properties: existing workers experience downward wage rigidity, as well as destruction of output following negative shocks due to layoffs or loss of morale; newly hired workers earn relatively flexible wages, but ...
May 2013Reference-Dependence and Labor-Market Fluctuations
with Kfir Eliaz: w19085
We incorporate reference-dependent worker behavior into a search-matching model of the labor market, in which firms have all the bargaining power and productivity follows a log-linear AR(1) process. Motivated by Akerlof (1982) and Bewley (1999), we assume that existing workers' output falls stochastically from its normal level when their wage falls below a "reference point", which (following Kőszegi and Rabin (2006)) is equal to their lagged-expected wage. We formulate the model game-theoretically and show that it has a unique subgame perfect equilibrium that exhibits the following properties: existing workers experience downward wage rigidity, as well as destruction of output following negative shocks due to layoffs or loss of morale; newly hired workers earn relatively flexible wages, bu...

Published: Reference Dependence and Labor Market Fluctuations, Kfir Eliaz, Ran Spiegler. in NBER Macroeconomics Annual 2013, Volume 28, Parker and Woodford. 2014

 
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