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 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...

While modern economic theorists have produced a variety of explanations for the failure of wages to fall in the face of unemployment, Keynes emphasis on relative wages has not been reflected in most contemporary discussions. This short paper suggests that relative wage theories in which workers'...

This paper updates the Shapiro-Stiglitz (1984) efficiency wage model with technical progress. Involuntary unemployment may not necessarily exist in a long-run equilibrium even when efficiency wages resulting from competitive markets are paid. The effect of reducing real (monetary) unemployment...

Using a dynamic efficiency wage model, where a Phillips curve appears because worker morale depends on the unemployment rate and a change in nominal wages, we analyze the effects of fiscal and monetary expansions and of an employment subsidy on unemployment in two steady states. In one steady...

We construct a model integrating the efficiency wage model of Shapiro-Stiglitz (1984) (SS), with an individual wage bargaining model in the Diamond-Mortensen-Pissarides (DMP) tradition where firms and workers form pairwise matches. We show that when workers may threaten to shirk on the job and...