The Fair Wage-Effort Hypothesis and Unemployment

1990/05/01 by George A. Akerlof, Janet L. Yellen · 6 citations
Economics, Econometrics and Finance · Social Sciences · Health Professions · #Labor market dynamics and wage inequality #Labor Movements and Unions #Employment and Welfare Studies

paper · doi:10.2307/2937787

openalex publication_date 1990/05/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/05

Abstract

This paper introduces the fair wage-effort hypothesis and explores its implications. This hypothesis is motivated by equity theory in social psychology and social exchange theory in sociology. According to the fair wage-effort hypothesis, workers proportionately withdraw effort as their actual wage falls short of their fair wage. Such behavior causes unemployment and is also consistent with observed cross-section wage differentials and unemployment patterns.

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