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Are Shirking and Leisure Substitutable? An Empirical Test of Efficiency Wages Based on Urban Economic Theory

  • Stephen L. Ross

    (University of Connecticut)

  • Yves Zenou

    (Research Institute of Industrial Economics, Stockholm)

Recent theoretical work has examined the spatial distribution of unemployment using the efficiency wage model as the mechanism by which unemployment arises in the urban economy. This paper extends the standard efficiency wage model in order to allow for behavioral substitution between leisure time at home and effort at work. In equilibrium, residing at a location with a long commute affects the time available for leisure at home and therefore affects the trade-off between effort at work and risk of unemployment. This model implies an empirical relationship between expected commutes and labor market outcomes, which is tested using the Public Use Microdata sample of the 2000 U.S. Decennial Census. The empirical results suggest that efficiency wages operate primarily for blue collar workers, i.e. workers who tend to be in occupations that face higher levels of supervision. For this subset of workers, longer commutes imply higher levels of unemployment and higher wages, which are both consistent with shirking and leisure being substitutable.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2006-21.

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Length: 47 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:uct:uconnp:2006-21
Note: We would like to thank the editor, Richard Arnott, and two anonymous referees for very helpful comments. We are also grateful to Jeffrey Zax and Deborah Garvey as well as the participants of the 2004 SOLE conference for excellent comments. Yves Zenou thanks the Marianne and marcus Wallenberg Foundation for financial support.
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