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Labor Discipline, Reputation and Underemployment Traps

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  • Peter Hans Matthews

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Abstract

The introduction of "effort inducible" and non-effort" workers into an otherwise standard model of labor discipline produces a paradox of sorts: when firms cannot tell the difference, the predictable reductions in both output and real wages are sometimes accompanied by an increase in profits. The resolution of this paradox is found in the difference in expected productities of workers with and without jobs, the source of a reputation effect that alters the balance of labor market power. When, as a consequence of the acquisition and depreciation of productive skills, the relative proportions of such workers are then endogenized, the model exhibits multiple equilibria for plausible parameter values. One of these equilibria can be understood as a new sort of "underemployment trap" with an atrophied primary sector.

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File URL: http://www.middlebury.edu/services/econ/repec/mdl/ancoec/0501.pdf
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Bibliographic Info

Paper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0501.

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Length: 38 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:mdl:mdlpap:0501

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Keywords: labor discipline; reputation effect; positive feedback; underemployment trap;

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