Involuntary Unemployment and Non-compensating Wage Differentials in an Experimental Labour Market

Ernst Fehr, Georg Kirchsteiger and Arno Riedl

Economic Journal, 1996, vol. 106, issue 434, 106-21

Abstract: In this paper, the authors report the results of a series of efficiency wage experiments. Some of the key predictions of the efficiency wage hypothesis are qualitatively confirmed by the data: higher wages caused a reduction in shirking; firms offered contracts which exhibited positive job rents; firms offered systematically different wages and job rents which gave rise to noncompensating income differentials; and endogenous involuntary unemployment occurred. Copyright 1996 by Royal Economic Society.

Date: 1996
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