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Humboldt-Universität zu Berlin -

Humboldt-Universität zu Berlin | Wirtschaftswissen­schaftliche Fakultät | Professuren | Volkswirtschaftslehre | Economic Policy | Wirtschaftspolitik | Research | Forschung | 1998 | Burda_Gueth_Kirchsteiger_Uhlig_Employment duration and resistance to wage reductions.html

Burda_Gueth_Kirchsteiger_Uhlig_Employment duration and resistance to wage reductions.html

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<title>Abstract | Employment duration and resistance to wage reductions..</title>
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<p align="justify">
One of the long-standing puzzles in economics is why wages do not fall
sufficiently in recessions so as to avoid increases in unemployment.Put
differently, if the competitive market wage declines, why don't
employers simply force their employees to accept lower wages as well?As
an alternative to reviewing statistical data we have performed an
experiment with a lower competitive wage in the second phase of an
employment relationship that is known to both parties.Our hypothesis is
that employers will not lower wages correspondingly and that employees
will resist such wage cuts.Our experiment casts two subjects in the
highly stylized roles of employer and employee.We find at most mild
evidence for resistance to wage declines.Instead, the experimental
results can be more fruitfully interpreted in terms of an "ultimatum
game", in which some surplus between employers and employees is
split.In this view, wages and their lack of decline are simply the
mechanical tool for accomplishing this split. </p>