Gift Exchange and the Business Cycle: The Fair Wage Strikes Back

We extend the benchmark RBC model amending the technology for e ciency wage considerations. The disutility of e ort depends on current, alternative and past wages. Past wages are treated as the worker's past wages (personal norm case) or as the past wages of the society (social norm case). This last model reproduces the high variability of employment, the low variability of wages and the low wageemployment correlation without requiring a second source of impulsions. Moreover the dynamics of wages and employment is adequately captured when norms adjust slowly to the environment. E ciency wages are thus useful to solve the business cycle puzzle when we allow for inter-temporal wage comparisons. JEL Classi cation: E24