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Equilibrium Unemployment and Wage Formation with Matching Frictions and Worker Moral Hazard

  • Guillaume ROCHETEAU

This paper synthesizes the shirking and the matching approaches of equilibrium unemployment in order to endogenize the wage formation process as a function of labour market conditions. The steady state equilibrium can take two forms depending on wether the no-shirking condition is binding or not. It is demonstrated that the efficiency wage approach is relevant when the unemployment rate is above a certain threshold. Futhermore, an efficiency wage is more likely when the disutility of effort is high, recruiting costs and workers' bargaining power are low, inspections are unlikely and the workers' productivity is weak.

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File URL: http://www.hec.unil.ch/deep/textes/00.07b.pdf
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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 00.07.

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Length: 23 pages
Date of creation: Mar 2000
Date of revision:
Publication status: Published in Labor Economics, vol. 8 (1), Feb. 2001, pp. 75-102
Handle: RePEc:lau:crdeep:00.07
Contact details of provider: Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
Email:


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  1. Alan Manning & J Thomas, 1997. "A Simple Test of the Shirking Model," CEP Discussion Papers dp0374, Centre for Economic Performance, LSE.
  2. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-21.
  3. MacLeod, W.B. & Malcomson, J.M., 1997. "Motivation and markets," Discussion Paper Series In Economics And Econometrics 9720, Economics Division, School of Social Sciences, University of Southampton.
  4. Lindbeck, A. & Snower, D.J., 1990. "Interactions between the Efficiency Wage and Insider- Outsider Theories," Papers 474, Stockholm - International Economic Studies.
  5. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  6. Lindbeck, Assar, 1992. "Macroeconomic theory and the labor market," European Economic Review, Elsevier, vol. 36(2-3), pages 209-235, April.
  7. Mortensen, Dale T & Pissarides, Christopher A, 1999. "Unemployment Responses to 'Skill-Biased' Technology Shocks: The Role of Labour Market Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 242-65, April.
  8. Guillaume ROCHETEAU, 2000. "Working Time Regulation in a Search Economy with Worker Moral Hazard," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 00.06, Université de Lausanne, Faculté des HEC, DEEP.
  9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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