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Efficiency Wages And Subjective Performance Pay

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  • HUANXING YANG

Abstract

"This paper studies optimal relational contracts in motivating workers in a market setting. We find that labor markets with higher turnover costs will use more subjective performance pay and less efficiency wages and that in those markets, the total wage payment is lower and the equilibrium employment level is higher. Surprisingly, under certain conditions, an increase in turnover costs leads to higher social welfare. Incorporating workers' search costs, we show that wages are procyclical in booms and are either rigid or countercyclical during recessions. The predictions of the model are consistent with some empirical evidence. "("JEL "D82, J33, J41, J63) Copyright (c) 2007 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 46 (2008)
Issue (Month): 2 (04)
Pages: 179-196

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Handle: RePEc:bla:ecinqu:v:46:y:2008:i:2:p:179-196

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Cited by:
  1. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers 12-054/1, Tinbergen Institute.
  2. Fahn, Matthias, 2011. "Three Essays on Commitment and Information Problems," Munich Dissertations in Economics, University of Munich, Department of Economics 13750, University of Munich, Department of Economics.

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