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Efficiency Wages, Interfirm Comparison, and Unemployment
Author(s) -
Johansen Kåre,
Strøm Bjarne
Publication year - 2001
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2001.tb00425.x
Subject(s) - economics , unemployment , efficiency wage , wage , wage inequality , labour economics , general equilibrium theory , work (physics) , inequality , real wages , technological change , microeconomics , macroeconomics , mechanical engineering , mathematical analysis , mathematics , engineering
The paper presents an efficiency wage model where worker effort depends on own wages relative both to wages of other workers in the firm and to similar workers in other firms. First, we show how the Solow conditions are modified if internal comparison effects are at work. Second, we discuss the effect of internal wage comparison on wage inequality within firms. Third, we study unemployment and relative wage determination within a general equilibrium model, and analyze the effect of technological change and various tax policies on equilibrium unemployment and relative wages. Finally, the short‐run effects of aggregate demand shocks are analyzed.