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On involuntary unemployment: notes on efficiency-wage competition

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  • Guerrazzi, Marco

Abstract

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

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38140.

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Date of creation: 2012
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Handle: RePEc:pra:mprapa:38140

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Keywords: Efficiency-Wages; Wage Competition; Nash Equilibria; Effort;

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  1. Faria, Joao Ricardo, 2000. "Supervision and effort in an intertemporal efficiency wage model: the role of the Solow condition," Economics Letters, Elsevier, Elsevier, vol. 67(1), pages 93-98, April.
  2. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  3. M Guerrazzi, 2008. "A Dynamic Efficiency-Wage Model with Continuous Effort and Externalities," Economic Issues Journal Articles, Economic Issues, Economic Issues, vol. 13(2), pages 37-58, September.
  4. Jellal, Mohamed & wolff, Fran├žois charles, 2003. "Dual labor market and strategic efficiency wage," MPRA Paper 38395, University Library of Munich, Germany.
  5. Pierre-Olivier Gourinchas & Aaron Tornell, 2000. "Exchange Rate Dynamics, Learning and Misperception," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0795, Econometric Society.
  6. Alexopoulos, Michelle, 2004. "Unemployment and the business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(2), pages 277-298, March.
  7. Akerlof, George A, 1984. "Gift Exchange and Efficiency-Wage Theory: Four Views," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 79-83, May.
  8. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, Elsevier, vol. 1(1), pages 79-82.
  9. Sandholm, William H., 2005. "Excess payoff dynamics and other well-behaved evolutionary dynamics," Journal of Economic Theory, Elsevier, Elsevier, vol. 124(2), pages 149-170, October.
  10. Uhlig, H.F.H.V.S. & Xu, Y., 1996. "Effort and the Cycle: Cyclical Implications of Efficiency Wages," Discussion Paper, Tilburg University, Center for Economic Research 1996-49, Tilburg University, Center for Economic Research.
  11. Lindbeck, Assar & Snower, Dennis J., 1987. "Efficiency wages versus insiders and outsiders," European Economic Review, Elsevier, Elsevier, vol. 31(1-2), pages 407-416.
  12. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
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Cited by:
  1. Guerrazzi, Marco, 2012. "Asymptotic relations in Cournot's game," MPRA Paper 42761, University Library of Munich, Germany.

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