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The Fair Wage-Effort Hypothesis and Unemployment

George A. Akerlof and Janet L. Yellen
The Quarterly Journal of Economics
Vol. 105, No. 2 (May, 1990), pp. 255-283
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2937787
Page Count: 29
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The Fair Wage-Effort Hypothesis and Unemployment
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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.

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