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Involuntary Unemployment and Non-compensating Wage Differentials in an Experimental Labour Market

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  • Fehr, Ernst
  • Kirchsteiger, Georg
  • Riedl, Arno

Abstract

In this paper, the authors report the results of a series of efficiency wage experiments. Some of the key predictions of the efficiency wage hypothesis are qualitatively confirmed by the data: higher wages caused a reduction in shirking; firms offered contracts which exhibited positive job rents; firms offered systematically different wages and job rents which gave rise to noncompensating income differentials; and endogenous involuntary unemployment occurred. Copyright 1996 by Royal Economic Society.

Suggested Citation

  • Fehr, Ernst & Kirchsteiger, Georg & Riedl, Arno, 1996. "Involuntary Unemployment and Non-compensating Wage Differentials in an Experimental Labour Market," Economic Journal, Royal Economic Society, vol. 106(434), pages 106-121, January.
  • Handle: RePEc:ecj:econjl:v:106:y:1996:i:434:p:106-21
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    References listed on IDEAS

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    1. Dowie, Jack A, 1976. "On the Efficiency and Equity of Betting Markets," Economica, London School of Economics and Political Science, vol. 43(17), pages 139-150, May.
    2. Shin, Hyun Song, 1991. "Optimal Betting Odds against Insider Traders," Economic Journal, Royal Economic Society, vol. 101(408), pages 1179-1185, September.
    3. Shin, Hyun Song, 1993. "Measuring the Incidence of Insider Trading in a Market for State-Contingent Claims," Economic Journal, Royal Economic Society, vol. 103(420), pages 1141-1153, September.
    4. Ron Bird & Michael McCrae, 1987. "Tests of the Efficiency of Racetrack Betting Using Bookmaker Odds," Management Science, INFORMS, vol. 33(12), pages 1552-1562, December.
    5. Jullien, Bruno & Salanie, Bernard, 1994. "Measuring the Incidence of Insider Trading: A Comment on Shin," Economic Journal, Royal Economic Society, vol. 104(427), pages 1418-1419, November.
    6. Hyun Song Shin, 2008. "Prices Of State Contingent Claims With Insider Traders, And The Favourite-Longshot Bias," World Scientific Book Chapters,in: Efficiency Of Racetrack Betting Markets, chapter 34, pages 343-352 World Scientific Publishing Co. Pte. Ltd..
    7. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-174, Spring.
    8. Tuckwell, R H, 1983. "The Thoroughbred Gambling Market: Efficiency, Equity and Related Issues," Australian Economic Papers, Wiley Blackwell, vol. 22(4), pages 106-118, June.
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    Citations

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    Cited by:

    1. Eriksson, Tor & Villeval, Marie Claire, 2008. "Performance-pay, sorting and social motivation," Journal of Economic Behavior & Organization, Elsevier, pages 412-421.
    2. Michael Burda & Werner G³th & Georg Kirchsteiger & Harald Uhlig, 2005. "Employment Duration and Resistance to Wage Reductions: Experimental Evidence," Homo Oeconomicus, Institute of SocioEconomics, pages 169-189.
    3. Christoph Zaborowski & Peter Zweifel, 1999. "Getting Out of Debt: Garnishment of Wage in Whose Interest?," European Journal of Law and Economics, Springer, vol. 8(3), pages 207-230, November.
    4. Georg Kirchsteiger & Michael Burda & Werner Güth & Harald Uhlig, 2005. "Employment duration and resistance to wage reductions," ULB Institutional Repository 2013/5897, ULB -- Universite Libre de Bruxelles.
    5. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    6. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2007. "Gift Exchange in a Multi-Worker Firm," Economic Journal, Royal Economic Society, vol. 117(522), pages 1025-1050, July.
    7. Fehr, Ernst & Kirchsteiger, Georg & Riedl, Arno, 1998. "Gift exchange and reciprocity in competitive experimental markets," European Economic Review, Elsevier, vol. 42(1), pages 1-34, January.
    8. Altmann, Steffen & Falk, Armin & Huffman, David B., 2010. "Implicit Contracts, Unemployment, and Labor Market Segmentation," IZA Discussion Papers 5001, Institute for the Study of Labor (IZA).
    9. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
    10. Huck, Steffen & Seltzer, Andrew & Wallace, Brian, 2004. "Deferred Compensation and Gift Exchange: An Experimental Investigation into Multi-Period Labor Markets," IZA Discussion Papers 1193, Institute for the Study of Labor (IZA).
    11. Işgın, Ebru & Sopher, Barry, 2015. "Information transparency, fairness and labor market efficiency," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 58(C), pages 33-39.
    12. repec:gam:jgames:v:7:y:2016:i:1:p:7:d:64553 is not listed on IDEAS
    13. repec:pit:wpaper:334 is not listed on IDEAS
    14. Tor Eriksson & Marie Claire Villeval, 2004. "Other-Regarding Preferences and Performance Pay. An Experiment on Incentives and Sorting," Post-Print halshs-00176769, HAL.
    15. Chaudhuri, Ananish & Cruickshank, Amy & Sbai, Erwann, 2015. "Gender differences in personnel management: Some experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 58(C), pages 20-32.
    16. Brian Roe & Steven Y. Wu, 2005. "Social Preferences and Relational Contracting Performance: An Experimental Investigation," Microeconomics 0509006, EconWPA.
    17. Ohana, Marc, 2009. "La réciprocité sur le marché du travail : les limites du laboratoire," L'Actualité Economique, Société Canadienne de Science Economique, vol. 85(2), pages 239-256, juin.
    18. Carpenter, Jeffrey & Hans Matthews, Peter & Robbett, Andrea, 2017. "Compensating differentials in experimental labor markets," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 69(C), pages 50-60.
    19. Annarita COLASANTE & Alberto RUSSO, 2014. "Reciprocity in the labour market: experimental evidence," Working Papers 404, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    20. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    21. Ananish Chaudhuri, 2016. "Recent Advances in Experimental Studies of Social Dilemma Games," Games, MDPI, Open Access Journal, vol. 7(1), pages 1-11, February.
    22. Gagnon, Nickolas & Noussair, C., 2016. "Does Reciprocity Persist Over Time?," Research Memorandum 033, Maastricht University, Graduate School of Business and Economics (GSBE).
    23. Peter Hans Matthews, 2004. "Who is Post-Walrasian Man?," Middlebury College Working Paper Series 0412, Middlebury College, Department of Economics.

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