Efficiency Wages: A Critical Assessment

Westley, Christopher; Schmidt, Bill H.

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Efficiency Wages: A Critical Assessment

Journal of Social, Political, and Economic Studies, Vol. 31, No. 2, pp. 163-174, Summer 2006

8 Pages Posted: 2 Jan 2008 Last revised: 14 Sep 2011

See all articles by Christopher Westley

Efficiency wage models of the labor market have become one of the key elements of the New and Post-Keynesian Schools of thought. In this paper, we argue that the concept of efficiency wages is not traditional to Keynesian economics, and that these schools developed the theory's modern relevance only after orthodox Keynesian theory had lost credibility in the 1970s and 1980s. The theory persists as a justification for an economy riddled with inherent real market imperfections, thus legitimizing continued interventionist macro policy.

Keywords: Efficiency wages, New Keynesian economics, New Classical economics

JEL Classification: E24

Suggested Citation: Suggested Citation

Westley, Christopher and Schmidt, Bill H., Efficiency Wages: A Critical Assessment. Journal of Social, Political, and Economic Studies, Vol. 31, No. 2, pp. 163-174, Summer 2006, Available at SSRN: https://ssrn.com/abstract=1079692