Working Paper: NBER ID: w2967
Authors: miles s kimball
Abstract: Efficiency wage models of the effort elicitation type have important implications for labor market dynamics. These models have a wide array of discontinuous sunspot equilibria driven by extraneous variables, in addition to well-behaved equilibria characterized by continuous, slowly adjusting patterns of employment. Many aspects of actual labor markets can be replicated by these models. For example, the longer-run movements they predict in employment allow macroeconomic evidence for a large labor supply elasticity to be reconciled with panel data evidence for a small labor supply elasticity. Many testable, but as yet untested predictions about labor market dynamics can also be generated.
Keywords: efficiency wage; labor market dynamics; unemployment; elasticity
JEL Codes: J64; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Shocks (E32) | Employment levels (J23) |
| Demand shocks (E39) | Lagged response of Employment levels (E24) |
| Macroeconomic labor supply elasticity (J20) | Microeconomic labor supply elasticity (J29) |
| Involuntary unemployment rates (J64) | Discrepancies between macroeconomic and microeconomic labor supply elasticities (E24) |
| Overall rate of hiring (J63) | Individual firms' labor costs (J39) |
| Overall rate of hiring (J63) | Firm-level decisions regarding wage setting and employment strategies (M51) |