A Model of the Determinants of Effort

Abstract

This study derives an expression for effort from utility-maximizing behavior on the part of workers, whose utility depends on consumption, effort, and the ratio between their wage and their perceived fair wage. Unlike many shirking models, this study treats effort as a continuous variable rather than as a dichotomous choice. Effort is shown to depend on wages at a worker's current firm, wages at other firms, the ratio between a worker's wage and perceived fair wage, unemployment benefits, the unemployment rate, and the firm's monitoring intensity.