The Fair Wage-Effort Hypothesis and Unemployment

George Akerlof and Janet L. Yellen

The Quarterly Journal of Economics, 1990, vol. 105, issue 2, 255-283

Abstract: This paper introduces the fair wage-effort hypothesis and explores its implications. This hypothesis is motivated by equity theory in social psychology and social exchange theory in sociology. According to the fair wage-effort hypothesis, workers proportionately withdraw effort as their actual wage falls short of their fair wage. Such behavior causes unemployment and is also consistent with observed cross-section wage differentials and unemployment patterns.

Date: 1990
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