The missing wage rigidity in general equilibrium models of efficiency wages is an artifact of the external wage reference perspective conventionally adopted by the literature. Efficiency wage models based on an internal wage reference perspective are capable of generating strong wage rigidity....

We study the relation between workers' skill dispersion and firm productivity using a unique dataset of Italian manufacturing firms from the early eighties to the late nineties with individual records on all their workers. Our measure of skill is the individual worker's effect obtained as a...

We study the effects of the more stringent employment protection legislation (EPL) that applies in Italy to firms with over 15 employees. We consider firms' propensity to grow when close to that threshold and changes in employment policies when they pass it. Using a comprehensive matched...

We develop a simple model to study how relative wage rigidity affects equilibrium taxation. It is argued that relative wage rigidity, by compressing incomes within the middle class, leads to a lower degree of redistributive conflict within the politically important core of society, even though...

This paper examines competitive search equilibrium when workers' effort choice and 'type' are private information. We derive a modified Hosios Rule determining the allocation of resources, and analyze how private information influences the responsiveness of the unemployment rate to changes in...

This paper studies a model of human capital accumulation with real wage rigidity. It is shown that the arbitrage condition between hiring a skilled versus an unskilled worker may be stated as a positive relationship between their relative unemployment rates. It may be the case that this locus is...

Employment Protection rules have two separate dimensions: a transfer from the firm to the worker to be laid off and a tax paid outside the firm-worker pair. It is well established that with full wage flexibility statutory severance payments (pure transfers) between employers and dismissed...

We compare monetary union to flexible exchange rates in an asymmetric, three-country model with active monetary policy. Unlike Friedman's (1953) case for flexible rates, we find that countries with high degree of nominal wage rigidity are better off in a monetary union. Their benefits increase...

Assuming that economic reforms are successful in Eastern Europe, what will be the effects on Western Europe? The focus is on the wage pressure that the threat of migration from East to West is likely to impose. The paper adopts a Ramsey model of intertemporal choice, for both individuals and...