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A Theory of Efficiency Wage with Community-Based Income Sharing

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  • Basu, Kaushik

    (Cornell U)

  • Felkey, Amanda

    (Cornell U)

Abstract

This 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 Info

Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 04-10.

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Date of creation: Jun 2004
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Handle: RePEc:ecl:corcae:04-10

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  1. Harvey Leibenstein, 1958. "Underemployment in Backward Economies: Some Additional Notes," Journal of Political Economy, University of Chicago Press, vol. 66, pages 256.
  2. Donald Cox & Zekeriya Eser & Emmanuel Jimenez, 1996. "Motives for Private Transfers over the Life Cycle: An Analytical Framework and Evidence for Peru," Boston College Working Papers in Economics 327., Boston College Department of Economics.
  3. Jean-Philippe Platteau, 1997. "Mutual insurance as an elusive concept in traditional rural communities," Journal of Development Studies, Taylor & Francis Journals, vol. 33(6), pages 764-796.
  4. Anjini Kochar, 2000. "Parental Benefits from Intergenerational Coresidence: Empirical Evidence from Rural Pakistan," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1184-1209, December.
  5. Ravallion, Martin & Dearden, Lorraine, 1988. "Social Security in a "Moral Economy": An Empirical Analysis for Java," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 36-44, February.
  6. Guha, Ashok, 1989. "Consumption, efficiency and surplus labour," Journal of Development Economics, Elsevier, vol. 31(1), pages 1-12, July.
  7. Basu, Kaushik, 1999. "The intriguing relation between adult minimum wage and child labor," Policy Research Working Paper Series 2173, The World Bank.
  8. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May.
  9. Kaushik Basu, 2003. "Analytical Development Economics: The Less Developed Economy Revisited," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262523442, December.
  10. Garance Genicot, 2005. "Malnutrition and Child Labor," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 83-102, 03.
  11. Rodgers, G B, 1975. "Nutritionally Based Wage Determination in the Low-Income Labour Market," Oxford Economic Papers, Oxford University Press, vol. 27(1), pages 61-81, March.
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