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A Theory of Efficiency Wage with Community-Based Income Sharing

Author

Listed:
  • Basu, Kaushik

    (Cornell U)

  • Felkey, Amanda

    (Cornell U)

Abstract

This paper uses efficiency wage theory and the existence of community based sharing to hypothesize that labor markets in developing countries have multiple equilibria--the same economy can be stuck at different levels of unemployment with different levels of wages. The result is constrained to poor economies where wage productivity models seem to be applicable and income sharing among the poor is prevalent. We establish a mutual reinforcement of income sharing and unemployment. That more unemployment leads to more income sharing is a logical extension of evidence and the fact that more sharing increases unemployment rates is established theoretically in our model. As a corollary, we show that within the same society, two different racial groups, that may be innately identical, can have different levels of unemployment and wages in equilibrium.

Suggested Citation

  • Basu, Kaushik & Felkey, Amanda, 2004. "A Theory of Efficiency Wage with Community-Based Income Sharing," Working Papers 04-10, Cornell University, Center for Analytic Economics.
  • Handle: RePEc:ecl:corcae:04-10
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    File URL: https://cae.economics.cornell.edu/04-10.pdf
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    References listed on IDEAS

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    1. Kaushik Basu, 2003. "Analytical Development Economics: The Less Developed Economy Revisited," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262523442, March.
    2. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-355, May.
    3. Basu, Kaushik, 2000. "The Intriguing Relation between Adult Minimum Wage and Child Labour," Economic Journal, Royal Economic Society, vol. 110(462), pages 50-61, March.
    4. Ravallion, Martin & Dearden, Lorraine, 1988. "Social Security in a "Moral Economy": An Empirical Analysis for Java," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 36-44, February.
    5. Garance Genicot, 2005. "Malnutrition and Child Labor," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 83-102, March.
    6. Cox, Donald & Eser, Zekeriya & Jimenez, Emmanuel, 1998. "Motives for private transfers over the life cycle: An analytical framework and evidence for Peru," Journal of Development Economics, Elsevier, vol. 55(1), pages 57-80, February.
    7. Dipak Mazumdar, 1959. "The Marginal Productivity Theory of Wages and Disguised Unemployment," Review of Economic Studies, Oxford University Press, vol. 26(3), pages 190-197.
    8. Daniela Casale & Colette Muller & Dorrit Posel, 2004. "'Two Million Net New Jobs': A Reconsideration Of The Rise In Employment In South Africa, 1995-2003," South African Journal of Economics, Economic Society of South Africa, vol. 72(5), pages 978-1002, December.
    9. Rodgers, G B, 1975. "Nutritionally Based Wage Determination in the Low-Income Labour Market," Oxford Economic Papers, Oxford University Press, vol. 27(1), pages 61-81, March.
    10. Donald Cox & Emmanuel Jimenez, 1993. "Motives For Private Transfers Over The Life Cycle: Analytical Framework And Evidence For Peru," Boston College Working Papers in Economics 245, Boston College Department of Economics.
    11. Jean-Philippe Platteau, 1997. "Mutual insurance as an elusive concept in traditional rural communities," Journal of Development Studies, Taylor & Francis Journals, vol. 33(6), pages 764-796.
    12. Anjini Kochar, 2000. "Parental Benefits from Intergenerational Coresidence: Empirical Evidence from Rural Pakistan," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1184-1209, December.
    13. Guha, Ashok, 1989. "Consumption, efficiency and surplus labour," Journal of Development Economics, Elsevier, vol. 31(1), pages 1-12, July.
    14. Harvey Leibenstein, 1958. "Underemployment in Backward Economies: Some Additional Notes," Journal of Political Economy, University of Chicago Press, vol. 66, pages 256-256.
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    1. repec:aes:jsesro:v:5:y:2016:i:2:p:33-48 is not listed on IDEAS

    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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