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Efficiency Wages, Interfirm Comparison, and Unemployment

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  • Kåre Johansen
  • Bjarne Strøm

Abstract

The paper presents an efficiency wage model where worker effort depends on own wages relative both to wages of other workers in the firm and to similar workers in other firms. First, we show how the Solow conditions are modified if internal comparison effects are at work. Second, we discuss the effect of internal wage comparison on wage inequality within firms. Third, we study unemployment and relative wage determination within a general equilibrium model, and analyze the effect of technological change and various tax policies on equilibrium unemployment and relative wages. Finally, the short‐run effects of aggregate demand shocks are analyzed.

Suggested Citation

  • Kåre Johansen & Bjarne Strøm, 2001. "Efficiency Wages, Interfirm Comparison, and Unemployment," Southern Economic Journal, John Wiley & Sons, vol. 68(2), pages 387-402, October.
    • Handle: RePEc:wly:soecon:v:68:y:2001:i:2:p:387-402
    DOI: 10.1002/j.2325-8012.2001.tb00425.x
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    References listed on IDEAS

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