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Labor Turnover and the Natural Rate of Unemployment: Efficiency Wage versus Frictional Unemployment

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  • MacLeod, W Bentley
  • Malcomson, James M
  • Gomme, Paul

Abstract

Wage and unemployment responses to changes in economic environment are compared for efficiency wage and frictional models. Changes in aggregate demand, persistence of job-specific shocks, cost of living, and unemployment benefits are considered. Wages and unemployment move in the same direction in the two models, except that an upward shift in aggregate labor demand can reduce the real wage in the efficiency wage, but not the frictional, model. In a numerical simulation calibrated to U.S. data, real productivity shocks in the efficiency wage model yield a ratio of unemployment to wage variability close to that of the United States. Copyright 1994 by University of Chicago Press.

Suggested Citation

  • MacLeod, W Bentley & Malcomson, James M & Gomme, Paul, 1994. "Labor Turnover and the Natural Rate of Unemployment: Efficiency Wage versus Frictional Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 276-315, April.
    • Handle: RePEc:ucp:jlabec:v:12:y:1994:i:2:p:276-315
    DOI: 10.1086/298358
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    2. Cahill, Miles B., 2000. "Exploring the interaction between efficiency wages and labor market frictions," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(1), pages 121-137.
    3. Patrick Francois & Joanne Roberts, 2003. "Contracting Productivity Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(1), pages 59-85.
    4. Moen, Espen R. & Rosén, Åsa, 2006. "Incentives in Competitive Search Equilibrium and Wage Rigidity," CEPR Discussion Papers 5554, C.E.P.R. Discussion Papers.
    5. Matthias Fahn & Takeshi Murooka, 2021. "Informal Incentives, Labor Supply, and the Effect of Immigration on Wages," Economics working papers 2021-12, Department of Economics, Johannes Kepler University Linz, Austria.
    6. Franz, Wolfgang, 1995. "Theoretische Ansätze zur Erklärung der Arbeitslosigkeit: Wo stehen wir 1995?," Discussion Papers 27, University of Konstanz, Center for International Labor Economics (CILE).
    7. Andrea Vindigni & Simone Scotti & Cristina Tealdi, 2015. "Uncertainty and the Politics of Employment Protection," Journal of Labor Economics, University of Chicago Press, vol. 33(1), pages 209-267.
    8. Matthias Fahn & Takeshi Murooka, 2022. "Informal Incentives and Labor Markets," Economics working papers 2022-05, Department of Economics, Johannes Kepler University Linz, Austria.
    9. YOKOYAMA, Izumi & 横山, 泉 & OBARA, Takuya & 小原, 拓也, 2015. "Optimal Combination of Wage Cuts and Layoffs: The Unexpected Side Effect of a Performance-based Payment System," Discussion Papers 2015-07, Graduate School of Economics, Hitotsubashi University.
    10. W. Bentley MacLeod & James M. Malcomson, 2023. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment: Thirty Years On," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 179(3-4), pages 470-499.
    11. Vindigni, Andrea, 2008. "Uncertainty and the politics of employment protection," POLIS Working Papers 106, Institute of Public Policy and Public Choice - POLIS.
    12. Wouter J. Den Haan & Garey Ramey & Joel Watson, 1999. "Contract-theoretic approaches to wages and displacement," Review, Federal Reserve Bank of St. Louis, issue May, pages 55-68.
    13. Mamit Deme & David Franck & Nadeem Naqvi, 2005. "A General Equilibrium Skill Acquisitions Model Of Development For Lesotho," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 15-29, June.
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    16. Patrick Fracois & Huw Lloyd-Ellis, 2005. "Schumpeterian Restructuring," Working Paper 1039, Economics Department, Queen's University.
    17. Izumi Yokoyama & Takuya Obara, 2017. "Optimal combination of wage cuts and layoffs—the unexpected side effect of a performance-based payment system," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-15, December.

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