A multisector model of efficiency wages

The pattern of effort and wages is derived in a multisector efficiency wage model. Firms choose effort endogenously. Easily monitored or low-turnover jobs have high effort and may have low wages in equilibrium. Empirical wage differentials from a measure of supervision are smaller than observed industry differentials that have been attributed to efficiency wage models and are closer to those predicted by the model. Workers can search for and avail of on-the-job offers. If sectors grow at different rates or the unemployment rate changes, the pattern of wage differentials is unaffected.