A Dynamic Efficiency-Wage Model with Continuous Effort and Externalities
This paper provides a general equilibrium efficiency-wage model in which employment evolves according to the rules of the Shapiro-Stiglitz?s (1984) shirking model. The proposed framework allows us to endogenise in a continuous manner the effort decision undertaken by the individual worker and it may resolve the indeterminacy arising from a model with exogenous (and constant) effort. Moreover, by exploiting an externality argument, we allow the model to capture different local dynamic patterns in which are found convergent fluctuations and persistent cycles. Finally, we show that in our framework unemployment may actually act as a worker discipline device, i.e., equilibria with higher (lower) unemployment rates are also characterised by higher (lower) effort levels.
Volume (Year): 13 (2008)
Issue (Month): 2 (September)
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