On the negative relationship between the wage rate and the unemployment rate: application of efficiency wage models

Abstract

Applying efficiency wage models, this article finds that there is a strong evidence of a negative wage curve for the state of Alabama. The elasticity of the wage curve is estimated to be −0.28, suggesting that the wage rate in Alabama is much more sensitive to a change in the unemployment rate than the USA and there exist segmented labour markets. The log-linear function performs slightly better than the semi-log function.