Memorandum,
Oslo University, Department of Economics

Abstract: We construct a model integrating the efficiency wage model of Shapiro-Stiglitz (1984) with the matching-bargaining models of Diamond, Mortensen and Pissarides (DMP). Firms and workers form pairwise matches, workers may shirk on the job, and the wage is set in an asymmetric Nash bargain over the surplus created by nonshirking. The wage is then always higher, and employment lower, than in both the corresponding Shapiro=Stiglitz and DMP models.

Keywords: WAGES; BARGAINING; EFFICIENCY; WAGES; LABOUR MARKET

JEL-codes: J31

31 pages, 1998

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