SMU SOE Online Seminar (Aug 26, 2021, 4pm-5.30pm): Efficiency Wage Theory Revisited

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ABSTRACT This paper provides a theory of efficiency wages and involuntary unemployment based on optimal monopsony pricing. It shows that an efficiency wage---that is, a wage exceeding the market-clearing wage---is optimal for a profit-maximizing monopsony if and only if the cost of procurement is not convex at the optimal level of employment. In this case, an efficiency wage that induces excess supply, random rationing and involuntary unemployment is optimal because it reduces the monopsony's procurement cost. If an efficiency wage is optimal absent regulatory intervention, a minimum wage equal to the efficiency wage increases total employment and decreases involuntary unemployment, possibly to the point of eliminating it. Policies that render rationing efficient eliminate involuntary unemployment but can also decrease total employment. The model and insights extend to imperfect competition. In particular, we show that there is not a monotone relationship between competition and involuntary unemployment. Click here to view the CV.		This seminar will be held virtually via Zoom. A confirmation email with the Zoom details will be sent to the registered email by 25 August 2021.
		PRESENTER Simon Loertscher University of Melbourne
		RESEARCH FIELDS Market/Mechanism Design Industrial Organization
		DATE: 26 August 2021 (Thursday)
		TIME: 4.00pm - 5.30pm