Efficiency Wages in Weitzman's Share Economy



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.