Book contents
- Frontmatter
- Contents
- Acknowledgments for Reprinted Articles
- Introduction
- The Theory of Underemployment in Densely Populated Backward Areas
- Another Possible Source of Wage Stickiness
- Equilibrium Unemployment as a Worker Discipline Device
- Involuntary Unemployment as a Principal-Agent Equilibrium
- Labor Contracts as Partial Gift Exchange
- A Model of the Natural Rate of Unemployment
- Job Queues and Layoffs in Labor Markets with Flexible Wages
- Hierarchy, Ability, and Income Distribution
- Incentives, Productivity, and Labor Contracts
- Work Incentives, Hierarchy, and Internal Labor Markets
Equilibrium Unemployment as a Worker Discipline Device
Published online by Cambridge University Press: 10 January 2011
- Frontmatter
- Contents
- Acknowledgments for Reprinted Articles
- Introduction
- The Theory of Underemployment in Densely Populated Backward Areas
- Another Possible Source of Wage Stickiness
- Equilibrium Unemployment as a Worker Discipline Device
- Involuntary Unemployment as a Principal-Agent Equilibrium
- Labor Contracts as Partial Gift Exchange
- A Model of the Natural Rate of Unemployment
- Job Queues and Layoffs in Labor Markets with Flexible Wages
- Hierarchy, Ability, and Income Distribution
- Incentives, Productivity, and Labor Contracts
- Work Incentives, Hierarchy, and Internal Labor Markets
Summary
Involuntary unemployment appears to be a persistent feature of many modern labor markets. The presence of such unemployment raises the question of why wages do not fall to clear labor markets. In this paper we show how the information structure of employer-employee relationships, in particular the inability of employers to costlessly observe workers' on-the-job effort, can explain involuntary unemployment as an equilibrium phenomenon. Indeed, we show that imperfect monitoring necessitates unemployment in equilibrium.
The intuition behind our result is simple. Under the conventional competitive paradigm, in which all workers receive the market wage and there is no unemployment, the worst that can happen to a worker who shirks on the job is that he is fired. Since he can immediately be rehired, however, he pays no penalty for his misdemeanor. With imperfect monitoring and full employment, therefore, workers will choose to shirk.
To induce its workers not to shirk, the firm attempts to pay more than the “going wage”; then, if a worker is caught shirking and is fired, he will pay a penalty. If it pays one firm to raise its wage, however, it will pay all firms to raise their wages. When they all raise their wages, the incentive not to shirk again disappears. But as all firms raise their wages, their demand for labor decreases, and unemployment results. With unemployment, even if all firms pay the same wages, a worker has an incentive not to shirk.
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- Information
- Efficiency Wage Models of the Labor Market , pp. 45 - 56Publisher: Cambridge University PressPrint publication year: 1986
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