<P> One criticism of this and other flavours of the efficiency wage hypothesis is that more sophisticated employment contracts can under certain conditions reduce or eliminate involuntary unemployment . Lazear (1979, 1981) demonstrates the use of seniority wages to solve the incentive problem, where initially workers are paid less than their marginal productivity, and as they work effectively over time within the firm, earnings increase until they exceed marginal productivity . The upward tilt in the age - earnings profile here provides the incentive to avoid shirking, and the present value of wages can fall to the market - clearing level, eliminating involuntary unemployment . Lazear and Moore (1984) find that the slope of earnings profiles is significantly affected by incentives . </P> <P> However, a significant criticism is that moral hazard would be shifted to employers, since they are responsible for monitoring the worker's effort . Obvious incentives would exist for firms to declare shirking when it has not taken place . In the Lazear model, firms have obvious incentives to fire older workers (paid above marginal product) and hire new cheaper workers, creating a credibility problem . The seriousness of this employer moral hazard depends on the extent to which effort can be monitored by outside auditors, so that firms cannot cheat, although reputation effects (e.g. Lazear 1981) may be able to do the same job . </P> <P> On the labor turnover flavor of the efficiency wage hypothesis, firms also offer wages in excess of market - clearing (e.g. Salop 1979, Schlicht 1978, Stiglitz 1974), due to the high cost of replacing workers (search, recruitment, training costs). If all firms are identical, one possible equilibrium involves all firms paying a common wage rate above the market - clearing level, with involuntary unemployment serving to diminish turnover . These models can easily be adapted to explain dual labor markets: if low - skill, labor - intensive firms have lower turnover costs (as seems likely), there may be a split between a low - wage, low - effort, high - turnover sector and a high - wage, high effort, low - turnover sector . Again, more sophisticated employment contracts may solve the problem . </P> <P> In selection wage theories it is presupposed that performance on the job depends on "ability", and that workers are heterogeneous with respect to ability . The selection effect of higher wages may come about through self - selection or because firms faced with a larger pool of applicants can increase their hiring standards and thereby obtain a more productive work force . </P>

Dual labor markets arise out of an efficiency wage model because
find me the text answering this question