The paper extends the Shapiro-Stiglitz (1987) efficiency wage model by endogenising the probability of worker displacement
as a function of the change in the firm's employment. This creates counter-cyclical variation in the wage mark-up and thereby
generates real wage persistence. A New Keynesian DSGE model equipped with this extension replicates the empirical facts of
a very limited response of the real wage to the business cycle together with a lagged hump-shaped response of employment to
output.
Keywords:Efficiency wages, shirking, real wage persistence, New Keynesian models
Forschungsbereich:Makroökonomie und öffentliche Finanzen