Book

Description

This book deals with two major puzzles in Labor Economics. The first puzzle is why do wages exist above the market clearing levels? Does Adam Smith's “invisible hand” materialize here or not? The efficiency wage argument suggests a way out of this tight corner by claiming that it is possible to reduce the cost of production by paying wages above market clearing level. The Efficiency Hypothesis tries to explain the presence of involuntary unemployment and wage differentials. The fact is that in the Efficiency Wages model the wages are not determined by demand-supply alone. This book critically reviews the rationale of wages above the market clearing level using Leibenstein and Shapiro and Stiglitz models. The second one is why do skill premiums not always increase for skilled workers in developed countries?