Labor market flexibility: efficiency wage analyses.

Summary This article examines the implications of the efficiency wage theory for wage rigidity and employment volume. This theory is based on the existence of a link between the level of the wage and the productivity of labor. In this case, the optimal level of the wage has no reason to correspond to its Walrasian level, leading in most cases to an excess of supply on the labor market. In equilibrium, the wage is downwardly rigid despite the existence of a positive level of unemployment. We begin by identifying the main implications of the wage-productivity relationship, and then consider the strategic foundations of the efficiency wage. We then show how wage rigidity associated with an unemployment buffer can play the role of an incentive mechanism when firms only imperfectly observe the performance of their employees. Finally, we attempt to link the efficiency wage theory to dualist representations of the labor market.