Are Shirking and Leisure Substitutable? An Empirical Test of Efficiency Wages Based on Urban Economic Theory

Recent theoretical work has examined the spatial distribution of unemployment using the efficiency wage model as the mechanism by which unemployment arises in the urban economy. This paper extends the standard efficiency wage model in order to allow for behavioral substitution between leisure time at home and effort at work. In equilibrium, residing at a location with a long commute affects the time available for leisure at home and therefore affects the trade-off between effort at work and risk of unemployment. This model implies an empirical relationship between expected commutes and labor market outcomes, which is tested using the Public Use Microdata sample of the 2000 U.S. Decennial Census. The empirical results suggest that efficiency wages operate primarily for blue collar workers, i.e. workers who tend to be in occupations that face higher levels of supervision. For this subset of workers, longer commutes imply higher levels of unemployment and higher wages, which are both consistent with shirking and leisure being substitutable.

Wage Premia in Employment Clusters: Agglomeration Economies or Worker Heterogeneity?

The correlation between wage premia and concentrations of firm activity may arise due to agglomeration economies or workers sorting by unobserved productivity. A worker's residential location is used as a proxy for their unobservable productivity attributes in order to test whether estimated work location wage premia are robust to the inclusion of these controls. Further, in a locational equilibrium, identical workers must receive equivalent compensation so that after controlling for residential location (housing prices) and commutes workers must be paid the same wages and only wage premia arising from unobserved productivity differences should remain unexplained. The models in this paper are estimated using a sample of male workers residing in 33 large metropolitan areas drawn from the 5% Public Use Microdata Sample (PUMS) from the 2000 U.S. Decennial Census. We find that wages are higher when an individual works in a location that has more workers or a greater density of workers. These agglomeration effects are robust to the inclusion of residential location controls and disappear with the inclusion of commute time suggesting that the effects are not caused by unobserved differences in worker productivity. Extended model specifications suggest that wages increase with the education level of nearby workers and the concentration of workers in an individual's own industry or occupation.

Shirking, Commuting and Labor Market Outcomes

Recent theoretical work has examined the spatial distribution of unemployment using the efficiency wage model as the mechanism by which unemployment arises in the urban economy. This paper extends the standard efficiency wage model in order to allow for behavioral substitution between leisure time at home and effort at work. In equilibrium, residing at a location with a long commute affects the time available for leisure at home and therefore affects the trade-off between effort at work and risk of unemployment. This model implies an empirical relationship between expected commutes and labor market outcomes, which is tested using the metropolitan sample of the American Housing Survey. No evidence is found to suggest a consistent impact of efficiency wages on the spatial pattern of unemployment or earnings.