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A Dynamic Efficiency-Wage Model with Continuous Effort and Externalities

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  • M Guerrazzi

Abstract

This paper provides a general equilibrium efficiency-wage model in which employment evolves according to the rules of the Shapiro-Stiglitz?s (1984) shirking model. The proposed framework allows us to endogenise in a continuous manner the effort decision undertaken by the individual worker and it may resolve the indeterminacy arising from a model with exogenous (and constant) effort. Moreover, by exploiting an externality argument, we allow the model to capture different local dynamic patterns in which are found convergent fluctuations and persistent cycles. Finally, we show that in our framework unemployment may actually act as a worker discipline device, i.e., equilibria with higher (lower) unemployment rates are also characterised by higher (lower) effort levels.

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  • M Guerrazzi, 2008. "A Dynamic Efficiency-Wage Model with Continuous Effort and Externalities," Economic Issues Journal Articles, Economic Issues, vol. 13(2), pages 37-58, September.
    • Handle: RePEc:eis:articl:208guerrazzi
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    References listed on IDEAS

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    Cited by:

    1. Marco Guerrazzi, 2020. "Efficiency-Wage Competition: What Happens as the Number of Players Increases?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 6(1), pages 13-35, March.
    2. Guerrazzi, Marco, 2012. "The animal spirits hypothesis and the Benhabib–Farmer condition for indeterminacy," Economic Modelling, Elsevier, vol. 29(4), pages 1489-1497.
    3. Marina Albanese & Cecilia Navarra & Ermanno Tortia, 2019. "Equilibrium unemployment as a worker insurance device: wage setting in worker owned enterprises," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(3), pages 653-671, October.
    4. Guerrazzi, Marco, 2012. "On involuntary unemployment: notes on efficiency-wage competition," MPRA Paper 38140, University Library of Munich, Germany.

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