A Theory of Efficiency Wage with Community-Based Income Sharing
AbstractThis paper uses efficiency wage theory and the existence of community based sharing to hypothesize that labor markets in developing countries have multiple equilibria--the same economy can be stuck at different levels of unemployment with different levels of wages. The result is constrained to poor economies where wage productivity models seem to be applicable and income sharing among the poor is prevalent. We establish a mutual reinforcement of income sharing and unemployment. That more unemployment leads to more income sharing is a logical extension of evidence and the fact that more sharing increases unemployment rates is established theoretically in our model. As a corollary, we show that within the same society, two different racial groups, that may be innately identical, can have different levels of unemployment and wages in equilibrium.
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Bibliographic InfoPaper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 04-10.
Date of creation: Jun 2004
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Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
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