Lecture 5 1-31-2012

Lecture 5 1-31-2012 - Efficiency wage models A. Three main...

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Efficiency wage models A. Three main versions : 1. Gift exchange model or reciprocity— carrots as motivators-- “you get what you pay for.” Higher wages inspire higher worker productivity. 2. Cost of job loss model— sticks as motivators— fear of being detected if shirking, even if monitoring is costly, because a job loss imposes real costs. Higher wages mean cost of job loss is higher if caught shirking. 3. Turnover costs: paying higher wages results in fewer quits. Each version of the model generates an equilibrium wage in which involuntary unemployment is an outcome, even though the wage is flexible (i.e., it is not set by a labor union, or made rigid by unemployment and other benefits). B. The model’s set-up: The firm recognizes that at any level of N, worker productivity is a function of the wage, rather than fixed by technology. So q = q(w), where q = Q/L Think of the wage here as a simplification of the multidimensional labor exchange, in which personnel 1
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This note was uploaded on 02/21/2012 for the course ECON 151 taught by Professor Staff during the Spring '08 term at Berkeley.

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Lecture 5 1-31-2012 - Efficiency wage models A. Three main...

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