Efficiency Wages in Weitzman's Share Economy

Abstract

Weitzman proposes widespread profit or revenue sharing as a way of guaranteeing both very low levels of equilibrium unemployment and increased stability in the face of aggregate shocks. The benefits of a share economy come from the subsidy that current workers pay to marginal workers. In an efficiency‐wage model, the wage subsidy paid by current workers costs the firm as much in lower productivity as it gains from lower labor costs. There is, therefore, neither a reduction of the equilibrium unemployment rate nor a necessary increase in macroeconomic stability when the share economy is introduced.