ABSTRACT
We develop an efficiency wage macro-static model where the efficiency of labour not only varies positively with the wage rate and unemployment rate but also varies inversely with the volume of criminal activity. We analyse how changes in factor endowments affect the unemployment rate, the size of the criminal sector and the level of national income of the country. We also analyse how the strengthening of punishment policies for criminals affects the unemployment rate, the size of the criminal sector and the level of national income.
