The paper develops an efficiency-wage model where input prices affect the equlibrium rate of unemployment. We show that a simple framework based on only two prices (the real price of oil and the real rate of interest) is able to explain the main post-war movements in the rate of U.S. joblessnss....

There are two findings that are conspicuous in almost all studies of individual wage determination. First, standard cross-section wage equations rarely account for more than half of the total variance in earnings between individuals. Second, there are large and persistent inter-industry wage...