A Bayesian evaluation of an efficiency-wage model with indeterminacy

Abstract

This paper provides a quantitative assessment of a general equilibrium economy with non-Walrasian labor markets. Indeterminacy in the economy does not require production externalities or increasing returns but it rests on replacing the labor supply curve by a no-shirking condition on the e¢ ciency-wage labor markets. The model is estimated on U.S. data via full information Bayesian methods. The shirking model is capable of matching several stylized facts of the aggregate economy and the labor market. Data favors a version of the arti…cial economy that is characterized by determinacy.