(a) In the Shapiro-Stiglitz efficiency wage model, why is it important that the employee receives a rent - that is, a wage greater than their opportunity cost of working? 

(b) Why are imperfect monitoring of shirking behaviour and the existence of unemployment in equilibrium important to ensure that the wage paid embodies a rent?

(c) How, if at all, would a worsening of working conditions affect the efficiency wage and equilibrium unemployment?

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Efficiency wage model is an important theory in labour economicswhich clearly spell out the relationship between wage and labour productivityin simple ... View the full answer