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 MoreI have been inspired, by listening to recent conversations on the Glenn Show, to delve into the writings of Thomas Sowell. This is a daunting task since the man has written a huge number of books, articles and essays. The Thomas Sowell Reader, however, seems to be a representative collection and a decent place to start. I am enjoying the reading experience so far. TS writes from a conservative, and fiercely pro-free market, perspective, at least in this the volume mentioned above. This invariably will put some readers off. But you’d be hard pressed to find a better example of punchy, yet eloquent, non-technical exposition of economics, social and political issues. The essay on the economics of discrimination and the small tract on “unfunded mandates” are particularly feisty and enjoyable.
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