Labor Productivity in the Efficiency-Wage Model: A Consideration of the Firm's Death Rate

Labor Productivity in the Efficiency-Wage Model: A Consideration of the Firm's Death Rate It is inappropriate to equate the "representative firm" with the typical firm, particularly for economies which consist of small enterprises where a large number of jobs are created or disappear as establishments are born or die. If workers care about the job disappearance risk, their utility and effort offered will be influenced by the death rate of firms. This paper sets out an efficiency-wage model and takes the probability of the firm's closure into account. By extension, it is shown that equilibrium labor productivity is plausibly procyclical under certain circumstances, which is consistent with the stylized facts observed in many countries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

Labor Productivity in the Efficiency-Wage Model: A Consideration of the Firm's Death Rate

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1023/A:1008115601139
Publisher site
See Article on Publisher Site

Abstract

It is inappropriate to equate the "representative firm" with the typical firm, particularly for economies which consist of small enterprises where a large number of jobs are created or disappear as establishments are born or die. If workers care about the job disappearance risk, their utility and effort offered will be influenced by the death rate of firms. This paper sets out an efficiency-wage model and takes the probability of the firm's closure into account. By extension, it is shown that equilibrium labor productivity is plausibly procyclical under certain circumstances, which is consistent with the stylized facts observed in many countries.

Journal

Small Business EconomicsSpringer Journals

Published: Oct 8, 2004

References

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