As put forward by Shapiro and Stiglitz (1984), when perfect worker monitoring is impossible, firms may pay higher than Walrasian wages in order to motivate workers not to shirk in the workplace. In this model, we analyze the shirking decision in relation with working time and wage compensation set by the firm. The equilibrium unemployment resulting from the incentive constraints is derived and the model is applied to exploring the effects of binding legislated working time on joblessness.
CONTENSOU, F. and VRANCEANU, R. (1999). Working Time and Unemployment in an Efficiency Wage Model. ESSEC Business School.