Efficiency Wages and the Business Cycle

E.J.F. Canton

    Research output: Working paperDiscussion paperOther research output

    217 Downloads (Pure)

    Abstract

    This paper presents a simple efficiency wage model to explain the transmission from exogenous productivity shocks to levels of economic activity. Higher real wages and rising unemployment induce workers to increase their effort. The disciplining effect of unemployment on the effort level has an upper and a lower limit. Mild productivity shocks produce unemployment fluctuations within these limits, so that firms will change the real wage rate to keep effort constant. Wild shocks hit these limits so that the disciplining effect becomes invariant to changes in unemployment, and real wages are held constant by the firm. By-and-large, the impact of mild (wild) shocks on the production level is mitigated (reinforced). Finally, the economy with profit-maximizing firms is compared with the economy where firms are managerially controlled and managers seek to maximize output.
    Original languageEnglish
    PublisherCentER, Center for Economic Research
    Volume1995-31
    Publication statusPublished - 1995

    Publication series

    NameCentER Discussion Paper
    Volume1995-31

    Fingerprint

    Unemployment
    Efficiency wages
    Business cycles
    Real wages
    Productivity shocks
    Managers
    Wage rate
    Workers
    Profit
    Fluctuations
    Economic activity

    Cite this

    Canton, E. J. F. (1995). Efficiency Wages and the Business Cycle. (CentER Discussion Paper; Vol. 1995-31). CentER, Center for Economic Research.
    Canton, E.J.F. / Efficiency Wages and the Business Cycle. CentER, Center for Economic Research, 1995. (CentER Discussion Paper).
    @techreport{bc9e7a1b09d84f17ad570c97e0527dbd,
    title = "Efficiency Wages and the Business Cycle",
    abstract = "This paper presents a simple efficiency wage model to explain the transmission from exogenous productivity shocks to levels of economic activity. Higher real wages and rising unemployment induce workers to increase their effort. The disciplining effect of unemployment on the effort level has an upper and a lower limit. Mild productivity shocks produce unemployment fluctuations within these limits, so that firms will change the real wage rate to keep effort constant. Wild shocks hit these limits so that the disciplining effect becomes invariant to changes in unemployment, and real wages are held constant by the firm. By-and-large, the impact of mild (wild) shocks on the production level is mitigated (reinforced). Finally, the economy with profit-maximizing firms is compared with the economy where firms are managerially controlled and managers seek to maximize output.",
    author = "E.J.F. Canton",
    year = "1995",
    language = "English",
    volume = "1995-31",
    series = "CentER Discussion Paper",
    publisher = "CentER, Center for Economic Research",
    type = "WorkingPaper",
    institution = "CentER, Center for Economic Research",

    }

    Canton, EJF 1995 'Efficiency Wages and the Business Cycle' CentER Discussion Paper, vol. 1995-31, CentER, Center for Economic Research.

    Efficiency Wages and the Business Cycle. / Canton, E.J.F.

    CentER, Center for Economic Research, 1995. (CentER Discussion Paper; Vol. 1995-31).

    Research output: Working paperDiscussion paperOther research output

    TY - UNPB

    T1 - Efficiency Wages and the Business Cycle

    AU - Canton, E.J.F.

    PY - 1995

    Y1 - 1995

    N2 - This paper presents a simple efficiency wage model to explain the transmission from exogenous productivity shocks to levels of economic activity. Higher real wages and rising unemployment induce workers to increase their effort. The disciplining effect of unemployment on the effort level has an upper and a lower limit. Mild productivity shocks produce unemployment fluctuations within these limits, so that firms will change the real wage rate to keep effort constant. Wild shocks hit these limits so that the disciplining effect becomes invariant to changes in unemployment, and real wages are held constant by the firm. By-and-large, the impact of mild (wild) shocks on the production level is mitigated (reinforced). Finally, the economy with profit-maximizing firms is compared with the economy where firms are managerially controlled and managers seek to maximize output.

    AB - This paper presents a simple efficiency wage model to explain the transmission from exogenous productivity shocks to levels of economic activity. Higher real wages and rising unemployment induce workers to increase their effort. The disciplining effect of unemployment on the effort level has an upper and a lower limit. Mild productivity shocks produce unemployment fluctuations within these limits, so that firms will change the real wage rate to keep effort constant. Wild shocks hit these limits so that the disciplining effect becomes invariant to changes in unemployment, and real wages are held constant by the firm. By-and-large, the impact of mild (wild) shocks on the production level is mitigated (reinforced). Finally, the economy with profit-maximizing firms is compared with the economy where firms are managerially controlled and managers seek to maximize output.

    M3 - Discussion paper

    VL - 1995-31

    T3 - CentER Discussion Paper

    BT - Efficiency Wages and the Business Cycle

    PB - CentER, Center for Economic Research

    ER -

    Canton EJF. Efficiency Wages and the Business Cycle. CentER, Center for Economic Research. 1995. (CentER Discussion Paper).