A model of the labour market with some Marxian and Keynesian features

This paper looks at a model of a labour market where labour contracts concerning job content cannot be written completely and employers have control over the effort level of workers. It is shown that in such a model if workers face strictly positive mobility costs in moving from one firm to another, then, however small these costs, the equilibrium level of workers' utility will be that obtainable by not working. In some situations this will be the subsistence level. This is the Marxian feature of the model. This result is independent of aggregate labour market conditions. Consequently, the model can be thought of as one where there is an endogenously fixed real wage. This is the Keynesian feature. It is shown that there is zero effective excess demand for labour in equilibrium so there are few incentives for employers to relinquish control over effort levels.