This paper surveys recent developments in the literature on efficiency wage theories of unemployment. Efficiency wage models have in common the property that in equilibrium firms may find it profitable to pay wages in excess of market clearing. High wages can help reduce turnover, elicit worker...

In the most widely analyzed type of efficiency wage model of involuntary unemployment, firms pay wages in excess of market clearing to give workers an incentive not to shirk. Such payments in excess of market clearing and the resultant equilibrium unemployment act as a worker discipline device....

This paper develops a model of dual labor markets based on employers' need to motivate workers. In order to elicit effort from their workers, employers may find it optimal to pay more than the going wage. This changes fundamentally the character of labor markets. The modelis applied to a wide...

In the late 1960s the stable negatively sloped Phillips Curve (PC) was overturned by the Friedman-Phelps natural rate model. Their PC was vertical in the long run at the natural unemployment rate, and their short-run curve shifted up whenever unemployment was pushed below the natural rate. This...

Large and persistent differences across industries in wages paid for given occupations have commonly been observed. Recently, the efficiency wage model (EWM) has been advanced as an explanation for these wage differentials. The shirking version of the EWM assumes a trade-off between...

We use the American Time Use Survey (ATUS) 2003-12 to estimate time spent by workers in non-work while on the job. Non-work time is substantial and varies positively with the local unemployment rate. While average time spent by workers in non-work conditional on any positive amount rises with...

This paper shows that market economies with search and in which wages are affected by efficiency wage considerations are not constrained Pareto efficient. Wages are not set at Pareto efficient levels, nor is the level of employment (unemployment) Pareto efficient. We identify the nature of the...

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...

We explore the implications of trade liberalization in economies with State Owned enterprises (SOEs) and shirking. SOEs are modelled as controlled by the members of the enterprise who determine output and effort levels, while facing output prices and wage rates set by government. Enterprise...

Efficiency wage models have been criticized because worker malfeasance can be prevented in a pareto efficient manner by requiring workers to post a bond which they lose if they are caught cheating. However, since it is costly to monitor workers and costless to demand a larger bond, firms should...