This paper studies the cyclical dynamics of Mortensen and Pissarides' (1994) model of job creation and destruction when workers' effort is not perfectly observable, as in Shapiro and Stiglitz (1984). An occasionally-binding no-shirking constraint truncates the real wage distribution from below,...

By relaxing the common efficiency wage assumption of exogenous shirking detection probabilities, we demonstrate how standards and efficiency wages are related. In a more general setting where the probability of detection depends upon the equilibrium effort level of non-shirkers, we show that the...

Although the Industrial Revolution is often characterized as the culmination of a process of commercialisation, the precise nature of such a link remains unclear. This paper models and analyzes such link: the role of commercialisation in raising efficiency wages as impersonal and anonymous...

We provide evidence on how two important types of institutions – dismissal barriers, and bonus pay – affect contract enforcement behavior in a market with incomplete contracts and repeated interactions. Dismissal barriers are shown to have a strong negative impact on worker performance, and...

We study employment, employee effort, wages and profit sharing when firms face stochastic revenue shocks and when base wages and profit shares are determined through negotiations. The negotiated profit share depends positively on the relative bargaining power of the trade union and it has...

Within an efficiency wage framework, we study the effects of two revenue-neutral tax reforms that change the progressivity of the labour tax system. A revenue-neutral increase in both the wage tax and tax exemption and a revenue-neutral change in the composition of labour taxation towards the...

We investigate the relationship between the slope of the wage-tenure profile and the level of monitoring across two cross sections of matched employer-employee British data. Our theoretical model predicts that increased monitoring leads to a decline in the slope of the wage-tenure profile. Our...

Consider a labour market with heterogeneous workers. Firms recruit workers by fixing a hiring standard and a wage offer simultaneously. A more demanding hiring standard necessitates a better wage offer in order to attract enough qualified applicants. As a result, an efficiency wage effect is...

Efficiency wage theory predicts that the wage per unit of effort will be lower in intensively monitored sectors. This wage differential will increase in effort. Using employer-employee matched data from Ghana we provide evidence supporting this hypothesis.

This paper places the competitive firm a la Sandom in a standard efficiency wage model, wherein the work effort of labor depends on the wage rate set by the firm. Irrespective of the availability of hedging opportunities, we show that the Solow condition under which the equilibrium effort-wage...