Labor Discipline, Reputation and Underemployment Traps

Peter Matthews

Middlebury College Working Paper Series from Middlebury College, Department of Economics

Abstract: The introduction of "effort inducible" and non-effort" workers into an otherwise standard model of labor discipline produces a paradox of sorts: when firms cannot tell the difference, the predictable reductions in both output and real wages are sometimes accompanied by an increase in profits. The resolution of this paradox is found in the difference in expected productities of workers with and without jobs, the source of a reputation effect that alters the balance of labor market power. When, as a consequence of the acquisition and depreciation of productive skills, the relative proportions of such workers are then endogenized, the model exhibits multiple equilibria for plausible parameter values. One of these equilibria can be understood as a new sort of "underemployment trap" with an atrophied primary sector.

Keywords: labor discipline; reputation effect; positive feedback; underemployment trap (search for similar items in EconPapers)
JEL-codes: E24 J41 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2005-01
New Economics Papers: this item is included in nep-lab and nep-mac
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