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Efficiency Wage, Commitment and Hysteresis

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  • Gilles Saint-Paul

Abstract

The efficiency wage model is usually thought of as a plausible model of the natural rate of unemployment which has little to say about its dynamics. This paper establishes that if firms pay efficiency wages and have some degree of commitment over their employment policy, then employment dynamics exhibit hysteresis. The implied behaviour of unemployment, however, is more similar to the one genrated by a firing costs model rather than the insider/outsider model. Hence the model does not exhibit as much persistence as the insider/outsider model.

Suggested Citation

  • Gilles Saint-Paul, 1995. "Efficiency Wage, Commitment and Hysteresis," Annals of Economics and Statistics, GENES, issue 37-38, pages 39-53.
  • Handle: RePEc:adr:anecst:y:1995:i:37-38:p:39-53
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    File URL: http://www.jstor.org/stable/20075979
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    Cited by:

    1. Fella Giulio, 2012. "Matching, Wage Rigidities and Efficient Severance Pay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-35, December.
    2. Cozzi, Marco & Fella, Giulio, 2016. "Job displacement risk and severance pay," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 166-181.
    3. Karabay, Bilgehan & McLaren, John, 2011. "Pareto-improving firing costs?," European Economic Review, Elsevier, vol. 55(8), pages 1083-1093.
    4. Frédéric Gavrel, 2018. "The magic of layoff taxes requires equilibrium stability," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 404-411, April.
    5. Frédéric Gavrel, 2017. "The Magic of Layoff Taxes Requires Equilibrium Stability," Working Papers halshs-01462917, HAL.
    6. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2017. "Inside severance pay," Journal of Public Economics, Elsevier, vol. 145(C), pages 211-225.
    7. Frédéric Gavrel, 2019. "Directed search, mismatch and efficiency," Working Papers halshs-02083453, HAL.

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