IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/38140.html
   My bibliography  Save this paper

On involuntary unemployment: notes on efficiency-wage competition

Author

Listed:
  • Guerrazzi, Marco

Abstract

This paper introduces a model of efficiency-wage competition along the lines put forward by Hahn (1987). Specifically, I analyse a two-firm economy in which employers screen their workforce by means of increasing wage offers competing one another for high-quality employees. The main results are the following. First, using a specification of effort such that the problem of firms is concave, optimal wage offers are strategic complements. Second, a symmetric Nash equilibrium can be locally stable under the assumption that firms adjust their wage offers in the direction of increasing profits by conjecturing that any wage offer above (below) equilibrium will lead competitors to underbid (overbid) such an offer. Finally, the exploration of possible labour market equilibria reveals that effort is counter-cyclical.

Suggested Citation

  • Guerrazzi, Marco, 2012. "On involuntary unemployment: notes on efficiency-wage competition," MPRA Paper 38140, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38140
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/38140/1/MPRA_paper_38140.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pierre-Olivier Gourinchas & Aaron Tornell, 2000. "Exchange Rate Dynamics, Learning and Misperception," Econometric Society World Congress 2000 Contributed Papers 0795, Econometric Society.
    2. Akerlof, George A, 1984. "Gift Exchange and Efficiency-Wage Theory: Four Views," American Economic Review, American Economic Association, vol. 74(2), pages 79-83, May.
    3. Mohamed Jellal & Francois-Charles Wolff, 2003. "Dual Labor Markets And Strategic Efficiency Wage," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 99-112.
    4. Bowles, Samuel, 1985. "The Production Process in a Competitive Economy: Walrasian, Neo-Hobbesian, and Marxian Models," American Economic Review, American Economic Association, vol. 75(1), pages 16-36, March.
    5. Faria, Joao Ricardo, 2000. "Supervision and effort in an intertemporal efficiency wage model: the role of the Solow condition," Economics Letters, Elsevier, vol. 67(1), pages 93-98, April.
    6. Robert Drago, 1989. "A Simple Keynesian Model of Efficiency Wages," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 12(2), pages 171-182, December.
    7. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
    8. Hahn, F H, 1987. "On Involuntary Unemployment," Economic Journal, Royal Economic Society, vol. 97(388a), pages 1-16, Supplemen.
    9. Sandholm, William H., 2005. "Excess payoff dynamics and other well-behaved evolutionary dynamics," Journal of Economic Theory, Elsevier, vol. 124(2), pages 149-170, October.
    10. Uhlig, H.F.H.V.S. & Xu, Y., 1996. "Effort and the Cycle : Cyclical Implications of Efficiency Wages," Discussion Paper 1996-49, Tilburg University, Center for Economic Research.
    11. van de Klundert, T.C.M.J., 1988. "Wage differentials and employment in a two-sector model with a dual labour market," Research Memorandum FEW 314, Tilburg University, School of Economics and Management.
    12. Assar Lindbeck & Dennis J. Snower, 1987. "Efficiency Wages Versus Insiders and Outsiders," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 657-666, Springer.
    13. Robert Drago, 1990. "A Simple Keynesian Model of Efficiency Wages," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(2), pages 171-182, January.
    14. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    15. Raff, Daniel M G & Summers, Lawrence H, 1987. "Did Henry Ford Pay Efficiency Wages?," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 57-86, October.
    16. Alexopoulos, Michelle, 2004. "Unemployment and the business cycle," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 277-298, March.
    17. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(4), pages 543-569.
    18. 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.
    19. Uhlig, H.F.H.V.S. & Xu, Y., 1996. "Effort and the Cycle : Cyclical Implications of Efficiency Wages," Other publications TiSEM dc793f82-7aaa-4ad9-8af4-2, Tilburg University, School of Economics and Management.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guerrazzi, Marco, 2012. "Asymptotic relations in Cournot's game," MPRA Paper 42761, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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. Jean‐Michel Grandmont, 2008. "Negishi–Solow efficiency wages, unemployment insurance and dynamic deterministic indeterminacy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(2), pages 247-272, June.
    3. 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.
    4. J. Barkley Rosser, 2003. "A Nobel Prize for Asymmetric Information: The economic contributions of George Akerlof, Michael Spence and Joseph Stiglitz," Review of Political Economy, Taylor & Francis Journals, vol. 15(1), pages 3-21.
    5. Campbell III, Carl M., 2006. "A model of the determinants of effort," Economic Modelling, Elsevier, vol. 23(2), pages 215-237, March.
    6. Katarzyna Budnik, 2012. "Do those who stay work less? On the impact of emigration on the measured TFP in Poland," NBP Working Papers 113, Narodowy Bank Polski.
    7. Ahmad Jafari Samimi, 2011. "Efficiency Wage Hypothesis: The Case Study of Iran's Manufacturing Industries," Journal of Social and Development Sciences, AMH International, vol. 1(5), pages 157-164.
    8. Aleksandar Vasilev, 2017. "A Real-Business-Cycle Model with Efficiency Wages and a Government Sector: The Case of Bulgaria," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 9(4), pages 359-377, December.
    9. Burda, Michael C. & Genadek, Katie & Hamermesh, Daniel S., 2015. "Not working at work: Loafing, unemployment and labor productivity," SFB 649 Discussion Papers 2015-033, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    10. Jinpeng Ma, 2004. "Jobless Recovering and Equilibrium Involuntary Unemployment with a Simple Efficiency Wage Model," Departmental Working Papers 200404, Rutgers University, Department of Economics.
    11. Lin, Chung-Cheng & Yang, C.C., 2010. "Reciprocity and downward wage rigidity," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1155-1168, December.
    12. Stadler, Manfred, 1998. "Dual labor markets, unemployment and endogenous growth," Tübinger Diskussionsbeiträge 126, University of Tübingen, School of Business and Economics.
    13. repec:hum:wpaper:sfb649dp2015-033 is not listed on IDEAS
    14. Bhattacharyya, Chandril & Gupta, Manash Ranjan, 2020. "Union, Efficiency of Labour and Endogenous Growth," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 61(2), pages 170-202, December.
    15. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing Limited, vol. 32(3), pages 273-299, June.
    16. Jean-Pierre Danthine & Andre Kurmann, 2004. "Fair Wages in a New Keynesian Model of the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 107-142, January.
    17. Hélène Zajdela, 1990. "Le dualisme du marché du travail : enjeux et fondements théoriques," Économie et Prévision, Programme National Persée, vol. 92(1), pages 31-42.
    18. Kiley, Michael T., 1997. "Efficiency wages, nominal rigidities and the cyclical behavior of real wages and marginal cost," Economics Letters, Elsevier, vol. 56(2), pages 215-221, October.
    19. David de la Croix & Gregory de Walque & Rafael Wouters, 2006. "Dynamics and monetary policy in a fair wage model of the business cycle," Working Paper Research 98, National Bank of Belgium.
    20. Cecilia Navarra & Ermanno Tortia, 2014. "Employer Moral Hazard, Wage Rigidity, and Worker Cooperatives: A Theoretical Appraisal," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(3), pages 707-726.
    21. DeAngelo, Gregory & McCannon, Bryan C. & Stockham, Morgan, 2023. "District attorney compensation and performance," International Review of Law and Economics, Elsevier, vol. 73(C).

    More about this item

    Keywords

    Efficiency-Wages; Wage Competition; Nash Equilibria; Effort;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:38140. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.