Efficiency Wages and Policy Relevant Macroeconomics

32 Pages Posted: 26 Apr 2010

Date Written: April 5, 2010

Abstract

This paper presents a compact economic model of optimizing workplace behavior, an important but overlooked venue of exchange that provides the missing half of morale-centric efficiency-wage theory. First appearing in the formal literature more than 30 years ago, the great promise of efficiency wages was the microfounding of rational labor-price market rigidities that would rescue Keynesian macroeconomics from the mounting assault by New Classical theorists. That promise, obviously, has remained unfulfilled, contributing to the diminished role of wage rents in modern macro thinking. This paper delivers on the early promise of efficiency wages. In particular, it extends the economic method of optimizing, price-mediated exchange from the market-place to the workplace and enables the construction of intertemporal general workplace equilibrium and the Workplace-Marketplace Synthesis (WMS). Empowered by the more comprehensive analysis of efficiency wages, the WMS features endogenous wage market-rigidities that are sufficiently robust to support (temporary and permanent) involuntary job loss and is, as a result, more policy-relevant than the modern mainstream New Neoclassical Synthesis.

Keywords: Wages, Job Loss, Macroeconomics, Monetary Policy

JEL Classification: E12, E24, E32, J30, M50

Suggested Citation

Annable, James, Efficiency Wages and Policy Relevant Macroeconomics (April 5, 2010). Available at SSRN: https://ssrn.com/abstract=1595758 or http://dx.doi.org/10.2139/ssrn.1595758

James Annable (Contact Author)

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