The Rational Worker Theory

Abstract

Worker on-the-job behavior has been largely, and curiously, ignored in mainstream economic theory. This paper corrects that deficiency, constructing a workplace model motivated by utility- and profit-optimization and focused on price-mediated exchange. The analysis critically accommodates specialized technology as well as what practitioners know about worker preferences, relocating of a substantial share of rational labor pricing from the labor market to the establishment-specific workplace and identifying conditions consistent with nonmarket-wage persistence. Robust explanations are provided for the reluctance of many employers to cut wages, labor-pricing differences by establishment size, and chronic (variable) market disequilibrium. At its most ambitious, the rational-worker theory identifies general workplace equilibrium as an compelling alternative to general market equilibrium in providing microfoundations for macroeconomic analysis.

Keywords: wages, worker behavior, workplace equilibrium

JEL Classification: D01, D23, E10, E23, E24, J22, J30, M50