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Involuntary Unemployment and Efficiency-Wage Competition

In: New Analyses of Worker Well-Being

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  • Marco Guerrazzi

Abstract

This chapter introduces a model of efficiency-wage competition along the lines put forward by Hahn (1987). Specifically, I analyze 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 well-behaved, optimal wage offers are strategic complements. Second, the 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 labor market equilibria reveals that effort is counter-cyclical.

Suggested Citation

  • Marco Guerrazzi, 2014. "Involuntary Unemployment and Efficiency-Wage Competition," Research in Labor Economics, in: New Analyses of Worker Well-Being, volume 38, pages 193-210, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rleczz:s0147-9121(2013)0000038006
    DOI: 10.1108/S0147-9121(2013)0000038006
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    Cited by:

    1. Guerrazzi, Marco, 2013. "Asymptotic Relations in Cournot’s Quantity Game: Some International Trade Implications - Relazioni asintotiche nel gioco di Cournot: alcune implicazioni per il commercio internazionale," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 66(1), pages 47-56.
    2. 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.

    More about this item

    Keywords

    Efficiency-wages; wage competition; Nash equilibria; effort; C72; E12; E24; J41;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • 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

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