| Abstract: | A simple synthesis of an efficiency wage model and a conventional labour supply model is used to investigate the validity of the Solow condition which holds that the effort-wage elasticity is unity. The key feature of the model is its consideration of the possibility that workers may work in excess of standard working hours. It is found that when employees are free to choose the number of working hours and actually work more than the standard hours, the effort-wage elasticity is less than unity. This result proposes a possible explanation to support Akerlof and Yellen's criticism that the unitary effort-wage elasticity is too high. |
