Efficiency wages and the quality of job matching

We introduce the quality of job matching in the effort function in order to calculate the efficiency wage. We consider two cases. In the first one, th e quality of the match is perfectly observable by the firm and we show that the equilibrium unemployment level is due to both high wages and mismatch. In the second case, we assume that job matching is a random variable and w e show that there are some regions in which the (efficiency) wage raise gen erates an effort greater than the initial wage increase and others where th e reverse prevails. (C) 1999 Elsevier Science B.V. All rights reserved.