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

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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.

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Authors and Affiliations

  1. Department of Economics, National Central University, Taiwan

    Li-Hsuan Huang

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  1. Li-Hsuan Huang
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Huang, LH. Labor Productivity in the Efficiency-Wage Model: A Consideration of the Firm's Death Rate. Small Business Economics 14, 149–155 (2000). https://doi.org/10.1023/A:1008115601139

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  • DOI: https://doi.org/10.1023/A:1008115601139

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