This article extends a classic on‐the‐job search model of homogeneous workers and firms by introducing a shirking problem. Workers choose their effort levels and search on the job. Firms elicit effort through wages and monitoring; an inverse relationship between wages and monitoring rates is derived. Wages play a dual role by allocating labor supply and motivating employee effort. This gives rise to an equilibrium wage distribution that contrasts with existing literature. In particular, I show that a hump‐shaped and positively skewed wage distribution, as observed empirically, can be derived even when firms and workers are, respectively, identical.
Authors
Research Fellow University College London
Suphanit is a Research Fellow of the IFS and a lecturer in the Department of Economics at University College London.
Journal article details
- DOI
- 10.1111/iere.12305
- Publisher
- International Economic Review
- Issue
- August 2018
Suggested citation
Piyapromdee, S. (2018). 'Residual wage dispersion with efficiency wages' (2018)
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