SHIRKING, STANDARDS AND THE PROBABILITY OF DETECTION
John G. Sessions and
John D. SkÃ¥tun
Bulletin of Economic Research, 2018, vol. 70, issue 2, 103-118
By relaxing the common efficiency wage assumption of exogenous shirking detection probabilities, we demonstrate how standards and efficiency wages are related. In a more general setting where the probability of detection depends upon the equilibrium effort level of nonâ€ shirkers, we show that the uniformly positive (negative) supplyâ€ side relationship between wages (unemployment insurance) and effort is no longer guaranteed. Profit maximization on the part of the firm, however, ensures that effort will depend positively (negatively) on wages (unemployment insurance) in equilibrium.
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