In an efficiency wage economy, lump-sum severance pay from which shirkers can be excluded raises employment. However, severance payments are usually related to wages. It is shown that earnings-related, mandated severance pay will have ambiguous employment effects if effort can be varied...

A higher unemployment compensation increases the incentive to shirk in efficiency wage models. If there is a stronger dependence of unemployment benefits on current earnings, these incentives will be reduced. An unemployment insurance with earnings-related benefits is thus characterised by...

Redundancy payments for collective dismissals are incorporated into a Shapiro-Stiglitz model of efficiency wages. It is shown that a fixed payment will lower wages, leave employment and welfare unaffected if there are no wage-dependent taxes, no additional firing costs and if unemployment...

Various taxes influence wage and employment outcomes in efficiency wage models. These findings are extended by incorporating more comprehensive tax functions, additional tax parameters, union-firm wage bargaining, and balanced budget restrictions. Moreover, the importance of different effort...

More progressive income taxes raise employment in models of imperfectly competitive labour markets. However, this prediction is not robust to modifications of the analytical structure. For example, in an efficiency wage setting, more progressive taxes reduce profits. This induces firms to exit...