The cost of one efficiency unit of labour in the urban informal sector is:
The condition for minimisation of the cost of one efficiency unit of labour is:
5) The efficiency-wage theory implies that the physical unit of labour differs from the efficiency unit of labour.
However, each parent is able to control the efficiency units of labor that his children are going to supply when they become workers given the average level [Mathematical Expression Omitted] of education.
Therefore, since the return on human capital is proportional to the wages per efficiency unit, parents should invest less in their children's education, and this will lower the growth rate.
Mathematical Expression Omitted] is the constant bequest per child and per efficiency unit of labor services in each period.
We consider first the case of equal initial technologies, coupled with different rates of growth in the number of efficiency units of labor, be this because of demographic reasons, or because of different rates of progress.
Where the labor supply in efficiency units grows faster--and this can be either through faster natural labor force growth or through more rapid progress--the return to capital should also be higher.
If the demand for labour measured in efficiency units is inelastic, if union preferences weight employment heavily, and if the unions are relatively powerful, then centralization results in higher wages and lower employment.
When firms are free to set wages, they choose the w which maximizes profits, or, which amounts to the same, minimizes the cost of one efficiency unit of labour.