Extracts from this document. Introduction Robin Mehta Summary of Equilibrium Unemployment as a worker discipline device by Carl Shapiro and Joseph Stiglitz In a perfectly competitive labour market we expect to see that the demand for labour is equal to the supply of labour at a given equilibrium wage. If the wage paid to employees is higher then this equilibrium wage then the demand for labour will fall short of the supply and will cause some rate of unemployment.(This working the opposite way as well.) When we find the wage being paid higher or lower than the equilibrium wage we expect to see it automatically falling or rising back to equilibrium level. However if we cite examples from real life we can almost always see that this isnt the case.

We can more frequently than not discover that the equilibrium wage is being bettered by firms, and is consistently holding that level. Why this rewarding of employees with higher than equilibrium wages persists is the basic question that Carl Shapiro and Joseph Stiglitz endeavour to answer in their paper 'Equilibrium Unemployment as a worker discipline device.' In attempting to answer this question Carl Shapiro and Joseph Stiglitz point out that we need to revert back to examing human nature itself, Humans will want to shirk as much work as possible.If they know they can get Middle Simply put the worker needs to weigh up the utility obtained from shirking against the utility gained from not shirking. C)Employers Here shapiro and stiglitz assume that there are M number of identical firms present and that each firm has a production function Q =F(L) L is the firms effective labour force.For simplicity they assume that the workers either conributes one unit of effective labour or none. Akina Nakamori Fushigi Raritan on this page. Thus the firm bases its wage packet offering on this information. Robyn Hitchcock Globe Of Frogs Rarlab.