Efficiency wages in heterogenous labour markets

Arbeitspapier

In this paper we tackle two shortcomings of present efficiency wage models. Firstly, they do not fully account for labour heterogeneity, thus implying that high-effort and low-effort units of labour are interchangeable. Secondly, building on this assumed homogeneity of labour, the models derive involuntary unemployment from effort decisions of workers, which are patently voluntary. We offer a consistent reformulation of the theory: Each of the effort or quality levels is regarded as a separate market which has its own clearing quantity and price. As such unemployment is a result of workers' reluctance to adjust to the prevailing market conditions on the respective labour sub-market. To further clarify heterogeneity in labour markets, we propose to employ the demand for workers' characteristics instead of the demand for workers. This microeconomic approach shows that in standard equilibrium employers will not choose among all workers but only select specific characteristic-types. Therefore to become attractive, an unemployed worker has to significantly alter either his wage or the bundle of offered characteristics. Both these modifications reinforce our central claim that free market interaction cannot lead to unemployment other than voluntary.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IES Working Paper ; No. 28/2011

Classification and Topics

• Classification: Wirtschaft ; Unemployment: Models, Duration, Incidence, and Job Search ; Demand and Supply of Labor: General
• Subject: labour market ; efficiency wages ; involuntary unemployment ; demand for heterogeneous goods

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ryska, Pavel ; Průša, Jan
• Event: Veröffentlichung
• (who): Charles University in Prague, Institute of Economic Studies (IES)
• (where): Prague
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/83300
• Last update: 10.03.2025, 11:41 AM CET