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EFFICIENCY WAGE MODELS OF UNEMPLOYMENT‐ONE VIEW

Heather Carmichael

Abstract

Persistent wage rigidity and involuntary unemployment appear to be recurrent problems in most economies. What could be preventing the wage adjustment necessary to clear the labor market? Many recent papers claim to have found the answer in efficiency wage models. This paper surveys this literature and attempts to evaluate its accomplishments. It concludes that the efficiency wage models fail to explain wage rigidity or persistent involuntary unemployment.

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Key concepts: Economics, Unemployment, Wage, Efficiency wage, Involuntary unemployment, Rigidity (electromagnetism), Labour economics, Full employment