JOB RIGHTS AND LABOR PRODUCTIVITY IN A SOVIET-TYPE ECONOMY

In this paper a shirking model of the labor market for Soviet-type economies (STEs) is developed. Because of the existence of job rights, in an STE unemployment cannot be utilized to discipline workers. State managers elicit effort through a system of internal promotion that has to be consistent with the centralized planning of wage funds. Comparative statics and welfare analysis of this work incentive are provided. Further, the superior efficiency of a reformed over a traditional STE is established. © 1993 Academic Press, Inc.