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Unemployment and Wages under Worker Moral Hazard with Firm-Specific Cycles

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  • Strand, Jon

Abstract

The author studies a model of efficiency wages due to worker moral hazard, where firms output prices shift between a high (H) and low (L) level. With no long-run wage commitments and identical treatment of workers, employment is cyclically rigid, and more so the shorter H periods are relative to L periods. When firms can commit to performance dependent wages, they instead prefer to first lay off young (untested) workers and pay them a lower initial wage, making employment more flexible. Private unemployment benefits are never paid to laid-off workers, even though temporary layoffs are never used to enforce effort. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Strand, Jon, 1991. "Unemployment and Wages under Worker Moral Hazard with Firm-Specific Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 601-612, August.
    • Handle: RePEc:ier:iecrev:v:32:y:1991:i:3:p:601-12
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    Cited by:

    1. Cahill, Miles B., 2000. "Exploring the interaction between efficiency wages and labor market frictions," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(1), pages 121-137.
    2. Strand, J., 1998. "Bargaining Versus Efficiency Wages in a Dynamic Labor Market: A Synthesis," Memorandum 22/1998, Oslo University, Department of Economics.
    3. Canegallo, Claudia, 1999. "Funzionamento del mercato del lavoro in presenza di informazione asimmetrica. Una rassegna della letteratura," POLIS Working Papers 8, Institute of Public Policy and Public Choice - POLIS.
    4. Wu Joseph S. K. & Ho Chi Pui, 2017. "The Shapiro-Stiglitz Model with Non-constant Marginal Utility," Open Economics, De Gruyter, vol. 1(1), pages 36-48, August.
    5. YOKOYAMA, Izumi & 横山, 泉 & OBARA, Takuya & 小原, 拓也, 2015. "Optimal Combination of Wage Cuts and Layoffs: The Unexpected Side Effect of a Performance-based Payment System," Discussion Papers 2015-07, Graduate School of Economics, Hitotsubashi University.
    6. Jon Strand, 2003. "Wage Bargaining Versus Efficiency Wages: A Synthesis," Bulletin of Economic Research, Wiley Blackwell, vol. 55(1), pages 1-20, January.
    7. Izumi Yokoyama & Takuya Obara, 2017. "Optimal combination of wage cuts and layoffs—the unexpected side effect of a performance-based payment system," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-15, December.

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