The theory of efficiency wages is one of the most enduring ideas in labour economics, bridging the gap between microeconomic models of firm behaviour and macroeconomic phenomena such as unemployment and wage rigidity. Its central proposition is deceptively simple: firms may rationally choose to pay wages above the market-clearing level because higher pay can enhance productivity, reduce turnover, attract better workers, or deter shirking. Yet this simple insight has profound implications for how economists think about labour markets, unemployment, and the role of policy.
Read MoreIt’s been two years since I last created an AI advent calendar, a stretch of time that feels like a lifetime given the pace of progress in large language models and AI more broadly. Back then, I used the then-current version of ChatGPT and the first iteration of DALL·E—the image generation tool where you had to purchase tokens on the go.
This time, I’m using GPT-5.0. Rather than producing short stories based on images, I’ve asked the AI to generate 24 short essays on economic theories and concepts, each roughly 600 words. A typical prompt might be something like: “Write an essay about [topic] in 600 words.”
I quickly discovered the need to be specific. GPT loves bullet points and excessive bolding, so I had to explicitly instruct it to avoid both. I also standardized a referencing format to ensure consistency across essays. In some prompts, I provided detailed context to steer the AI in a particular direction; in others, I left it more open-ended.
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