Paying workers more than the market requires can still be the rational move

In 1984, Carl Shapiro and Joseph Stiglitz showed that when firms can't perfectly monitor effort, paying above the market-clearing wage gives workers something to lose by shirking. If every firm does this at once, some workers stay unemployed on purpose, as the threat of joining them is what keeps everyone else honest. It explained why wages resist falling even when jobs are scarce.

— Carl Shapiro and Joseph E. Stiglitz, Equilibrium Unemployment as a Worker Discipline Device — American Economic Review, Vol. 74, No. 3, 1984

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