DP8997 | Reference Dependence and Labor-Market Fluctuations

Publication Date

27/05/2012

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Abstract

We incorporate reference-dependent preferences into a search-and-matching model of the labor market, in which firms have all the bargaining power and productivity follows an AR(1) process. Motivated by Akerlof (1982) and Bewley (1999), we assume that existing workers are willing to exert unobserved,