INVOLUNTARY UNEMPLOYMENT AND NON-COMPENSATING WAGE DIFFERENTIALS IN AN EXPERIMENTAL LABOR-MARKET

In this paper we report the results of a series of efficiency wage exp eriments. Some of the key predictions of the efficiency wage hypothesi s are qualitatively confirmed by the data: (i) higher wages caused a r eduction in shirking; (ii) firms offered contracts which exhibited pos itive job rents; (iii) firms offered systematically different wages an d job rents which gave rise to non-compensating income differentials; and (iv) endogenous involuntary unemployment occurred.