Small Business Economics

, Volume 14, Issue 2, pp 149–155 | Cite as

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

  • Li-Hsuan Huang


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.


Death Rate Labor Productivity Industrial Organization Stylize Fact Small Enterprise 
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Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  • Li-Hsuan Huang
    • 1
  1. 1.Department of EconomicsNational Central UniversityTaiwan

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