The Macroeconomic Consequences of Reciprocity in Labor Relations*

We develop and analyze a structural model of efficiency wages founded on reciprocity. Workers are assumed to face an explicit trade‐off between the disutility of providing effort and the psychological benefit of reciprocating the gift of a wage offer above some reference level. The model provides a rationale for rent sharing—a feature that is very much present in the data but absent from previous formulations of the efficiency wage hypothesis. This firm‐internal perspective on efficiency wages has potentially important macroeconomic consequences: rent‐sharing considerations promote wage rigidity, internal amplification and differential responses to technology and demand shocks.