Unemployment, Long-Term Employment Relations, and Productivity Growth

Using an "effort-regulation" type of efficiency wage model, it is demonstrated that a firm may respond to slackening labor markets by acting to increase the intensity with which workers work. The magnitude of this work intensity effect depends on the structure of employment relations. Where long-term employment relations are prevalent, the effect of labor market slack on work intensity may be diminished. These propositions are tested empirically by estimating the effects unemployment and long-term employment have on productivity growth in two-digit manufacturing industries