The Shapiro-Stiglitz Shirking Model

Paper Summary:

This paper examines how the Shapiro-Stiglitz model clearly defines the real wage as rigid, while the unemployment rate is a factor of that wage and how it is that unemployment that can be used as a worker discipline device to reduce a firm's cost in monitoring workers. It concludes that the model is very useful in describing general labor market tendencies and in describing human behavior as a factor of wages.

From the Paper:

"One of the most important assumptions in the Shapiro-Stiglitz shirking model is the fact that firms do not have complete information about the workers effort level. In this scenario firms have two options: either to instigate methods of monitoring worker's effort level, which is a very costly and inefficient solution; or to pay workers a higher than market level wage in order to provide enough incentive for the worker not to shirk. In the Shapiro-Stiglitz model the worker has two alternatives: either to work or to shirk."

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