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Empirical Tests of Efficiency Wage Models

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  • Tzu‐Ling Huang
  • Arnems Hallam
  • Peter F. Orazem
  • Eizabeth M. Paterno

Abstract

Two‐digit manufacturing industry‐level production functions are used to test efficiency wage propositions. Conclusive tests require functional forms which allow differences in elasticities of substitution between observable human capital, wage premia and other inputs. Results demonstrate that unexplained industry wage premia and higher unemployment rates raise productivity. Wage premia and the human capital wage component cannot be aggregated into a single human capital index. Nevertheless, 88% of the productivity effect associated with industry wages can be tied to observable human capital in the industry, with only 12% associated with the wage premium.

Suggested Citation

  • Tzu‐Ling Huang & Arnems Hallam & Peter F. Orazem & Eizabeth M. Paterno, 1998. "Empirical Tests of Efficiency Wage Models," Economica, London School of Economics and Political Science, vol. 65(257), pages 125-143, February.
    • Handle: RePEc:bla:econom:v:65:y:1998:i:257:p:125-143
    DOI: 10.1111/1468-0335.00117
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    Cited by:

    1. Joydeep Bhattacharya & Shankha Chakraborty, 2005. "What do information frictions do?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(3), pages 651-675, October.
    2. Syed Kanwar Abbas & Asad Zaman, 2005. "Efficiency Wage Hypothesis—The Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 1051-1066.
    3. Fallahi, Firouz & Sakineh, Sojoodi & Mehin Aslaninia, Nasim, 2010. "Determinants of Labor Productivity in Iran’s Manufacturing Firms: With Emphasis on Labor Education and Training," MPRA Paper 27447, University Library of Munich, Germany.

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