JOB SECURITY AND UNEMPLOYMENT IN AN EFFICIENCY-WAGE MODEL

Job security and its effects on unemployment are controversial issues. I investigate the effects of job security in art efficiency-wage mode l of unemployment. Though efficiency-wage ideas have wide appeal and p rovide strong foundations of involuntary unemployment, not much has be en written about the ramifications of job security in these scenarios. I show that job security creates wage and unemployment effects when e fficiency-wage aspects are relevant, because employment guarantees shi ft the burden of workers' effort attraction to the wage mechanism. The se effects are further enhanced when workers have some bargaining powe r My results, therefore, suggest a trade-off between employment stabil ity and employment: High employment security leads to smaller employme nt (or larger involuntary unemployment).