Max-Planck-Institut zur Erforschung von Wirtschaftssystemen
Abstract
To explain potential sources of wage rigidity this article analyzes a model of reciprocal kindness applied to a repeated ultimatum game with changing and nonzero conflict payoffs. The model is also tested in a laboratory experiment. The results are compatible with the rentsharing approach to wage rigidity. Wages adjust to 'market pressure' but are less flexible when employees demand their wages, i. e. when they are in a relatively strong bargaining position