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ABSTRACT
This paper explores the economic implications of unemployment by appealing to efficiency wage models. Agency issues in labor markets are first surveyed and discussed, providing the foundation for a detailed analysis and synthesis of two shirking models using uniform language and terminology. The use of a class-based analysis shows that unemployment disciplines both unemployed and employed labor, and explains the presence of unemployment as an equilibrium phenomenon. The economic effects of unemployment on wages, employee effort, labor surveillance, and other aspects, such as unemployment duration, are developed and explored.
Keywords: Unemployment; class conflict; efficiency wage; cost of job loss
1. INTRODUCTION
One of the largest challenges for neoclassical economic theory has been explaining the existence and persistence of unemployment in a competitive capitalist economy. Unlike the market for goods and services, money, and foreign exchange, the labor market does not clear as wages do not to adjust to equilibrate the supply and demand for labor. The labor market is in a constant state of disequilibrium where, paradoxically, unemployment appears to be an equilibrium phenomenon. Why is it, then, that competitive labor market fails to clear in equilibrium?
Marx (1976) viewed unemployment as a central element of capitalism that gives the capitalist class a bargaining power advantage relative to labor. A surplus population of employable labor, constantly in competition for jobs, makes labor a non-scarce good and thus relieves upward pressure on wages. When capitalists can hire labor for a lower wage, it increases the surplus value that can be extracted from labor and thus enables a higher rate of profit. Unemployment, in other words, is rooted in class conflict as it serves to depress wages and ensure profits.
Marx's theory of unemployment is similar to Kalecki (1943), who suggested that full employment would reduce the social and economic power of capital over labor. Despite the ability of full employment policies to increase aggregate demand and thus, potentially, firm profits, Kalecki sees class interests dominating economic interests. Indeed, '"discipline in the factories' and 'political stability' are more appreciated than profits by business leaders" (p. 351). Unemployment thus preserves the existing power relations between capital and labor.
Keynes (1964) argued that labor markets do not clear because money wages are downwardly rigid. Multiterm labor...