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Efficiency wages, labor heterogeneity and the fInancing of the training cost


  • WAUTHY, Xavier

    () (Fond National de la Recherche Scientifique. IRES, Université catholique de Louvain, Louvain-la-Neuve, Belgium)

  • ZENOU, Yves

    () (ERMES, Uniserité Panthéon-Assas and Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL))


We consider a dual labor market with a continuum of heterogeneous workers differentiated by their ability of acquiring a specific skill. In the primary sector, jobs require firm-specific training and firms set efficiency wages. In the secondary sector, wages are competitive and no training is required. Given workers’ heterogeneity, firms in the primary sector face an elastic labor supply, so that they can be labor constrained at the efficiency wage. When this is the case, we show that firms may optimally choose to bear all the training cost in order to relax the labor supply constraint.

Suggested Citation

  • WAUTHY, Xavier & ZENOU, Yves, 1997. "Efficiency wages, labor heterogeneity and the fInancing of the training cost," CORE Discussion Papers 1997072, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1997072

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    References listed on IDEAS

    1. Albrecht, James W & Vroman, Susan B, 1992. "Dual Labor Markets, Efficiency Wages, and Search," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 438-461, October.
    2. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    3. Gottfries, Nils & McCormick, Barry, 1995. "Discrimination and open unemployment in a segmented labour market," European Economic Review, Elsevier, vol. 39(1), pages 1-15, January.
    4. Smith, Tony E. & Zenou, Yves, 1997. "Dual Labor Markets, Urban Unemployment, and Multicentric Cities," Journal of Economic Theory, Elsevier, vol. 76(1), pages 185-214, September.
    5. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
    6. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
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    More about this item


    dual labor markets; efficiency wages; training costs; workers’ heterogeneity; labor supply constraint;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts


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