Efficiency-Wage Competition: What Happens as the Number of Players Increases?

In this paper, I explore the consequences of extending the number of firms within an efficiency-wage competition setting by showing that the shape of the effort function is crucial in determining key features of the economy. Specifically, when workers are endowed with a concave (sigmoid) effort function, the wage behaviour of firms follows a collusive (competitive) pattern and the symmetric Nash equilibrium is unstable (stable). Moreover, when effort is concave (sigmoid), full employment is characterized by a labour exploitation that increases (decreases) together with the number of productive units required to sustain that allocation. These findings may have intriguing implications for the existence of involuntary unemployment as well as for policies aimed at increasing employment.