No-shirking Conditions in Frictional Labor Markets

Abstract

A matching model, combined with a shirking model of efficiency wages, is examined. It depends on sources of unemployment variation whether the no-shirking condition (NSC) tends to be binding as the unemployment rate is lower. When only productivity varies, the NSC tends to be binding as the unemployment rate is higher, as in Rocheteau (2001). However, when only matching efficiency varies, the NSC tends to be binding as the unemployment rate is lower.