Effective Demand, Labor Discipline and Wage Inequality

Gilberto Tadeu Lima () and Jaylson Jair da Silveira ()

No 2026_15, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: We develop a macrodynamic model in which firms’ choice of wage-formation strategy is determined by an evolutionary game-theoretic equilibrium notion. Each firm may operate either as a wage setter, adopting an efficiency-wage strategy, or as a wage taker within the non-efficiency-wage segment of the labor market. The unique evolutionarily stable strategy is a mixed strategy, where the probability assigned to each wage-formation strategy varies as a monotonic function of the employment rate. This rate, together with other macroeconomic variables, is determined by aggregate effective demand. A central feature of the model economy is a feedback mechanism linking cross-firm heterogeneity in wage-formation strategies—and the associated dispersion in labor productivities, real wages, profit shares, and employment levels—to the employment rate. This rate, together with capital capacity utilization and output growth, may exhibit endogenous, self-sustaining cyclical fluctuations over time. This implies that inequalities in labor productivities, real wages, and employment levels across otherwise observationally equivalent workers may display analogous cyclical dynamics as well.

Keywords: Effective demand; labor discipline; efficiency wage; evolutionarily stable strategy; wage inequality (search for similar items in EconPapers)
JEL-codes: C73 E14 J31 J64 (search for similar items in EconPapers)
Date: 2026-05-18, Revised 2026-05-19
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.repec.eae.fea.usp.br/documentos/Lima_Silveira_15WP.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spa:wpaper:2026wpecon15

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers, Department of Economics from University of São Paulo (FEA-USP) Contact information at EDIRC.
Bibliographic data for series maintained by Pedro Garcia Duarte ( this e-mail address is bad, please contact ).