Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 753: Are Shirking and Leisure Substitutable? An Empirical Test of Efficiency Wages Based on Urban Economic Theory

Stephen L. Ross () and Yves Zenou ()
Additional contact information
Stephen L. Ross: University of Connecticut, Postal: Department of Economics, 341 Mansfield Road U-63, Storrs, CT 06269, USA
Yves Zenou: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: Recent theoretical work has examined the spatial distribution of unemployment using the efficiency wage model as the mechanism by which unemployment arises in the urban economy. This paper extends the standard efficiency wage model in order to allow for behavioral substitution between leisure time at home and effort at work. In equilibrium, residing at a location with a long commute affects the time available for leisure at home and therefore affects the trade-off between effort at work and risk of unemployment. This model implies an empirical relationship between expected commutes and labor market outcomes, which is tested using the Public Use Microdata sample of the 2000 U.S. Decennial Census. The empirical results suggest that efficiency wages operate primarily for blue collar workers, i.e. workers who tend to be in occupations that face higher levels of supervision. For this subset of workers, longer commutes imply higher levels of unemployment and higher wages, which are both consistent with shirking and leisure being substitutable.

Keywords: Efficiency Wage; Leisure; Urban Unemployment

JEL-codes: J41; R14

47 pages, June 19, 2008

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