Learning Objectives:
In this lecture
We will review the theory of supply demand equilibrium in the labor market and show how it failed to hold in the Great Depression.
Efficiency Wage Theories
Gift Exchange in the Labor Market.
First key reading is Syed Kanwar Abbas's Thesis -- especially the introduction, which reviews the Keynesian theories.
Zaman, Asad and Syed Kanwar Abbas, "Efficiency Wage Hypothesis – the case of Pakistan.” Pakistan Development Review, Vol 44 number 4, Winter 2005, 1051-1066
Second key reading is paper written by Armin Falk which deals with gift exchange mechanism in Charitable contributions:
CHARITABLE GIVING AS A GIFT EXCHANGE EVIDENCE FROM A FIELD EXPERIMENT
ARMIN FALK
CESIFO WORKING PAPER NO. 1218
CATEGORY 2: PUBLIC CHOICE
JUNE 2004
Abstract
This study reports data from a field experiment that was conducted to investigate the relevance of gift-exchange for charitable giving. Roughly 10,000 solicitation letters were sent to potential donors in the experiment. One third of the letters contained no gift, one third contained a small gift and one third contained a large gift. Whether a potential donor received a letter with or without a gift was randomly determined. We observe strong and systematic effects from including gifts. Compared to the no gift condition, the relative frequency of donations increased by 17 percent if a small gift was included and by 75 percent for a large gift. Consequently, including gifts was highly profitable for the charitable organization. The contribution of this paper is twofold: first, it shows that gift-exchange is important for charitable giving, in addition to the warm-glow motive. Second, the paper confirms the economic relevance of reciprocity by using field data. This extends the current body ofresearch on reciprocity, which is almost exclusively confined to laboratory studies.
Lecture Notes is also attached below the page.