The missing wage rigidity in general equilibrium models of efficiency wages is an artifact of the external wage reference perspective conventionally adopted by the literature. Efficiency wage models based on an internal wage reference perspective are capable of generating strong wage rigidity....

We build a New Keynesian model of the business cycle with sticky prices and real wage rigidities motivated by efficiency wages of the gift exchange variety. Compared to a standard sticky price model, our Fair Wage model provides an explanation for structural employment and generates more...

We develop and analyse 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...