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Wages, employer costs, and employee performance in the firm

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  • Harry J. Holzer

Abstract

Analyzing data from a 1982 survey of firms, the author finds evidence that firms' wage levels are positively associated with the previous experience of new hires, the tenure of employees with the firm, managers' perceptions of employee productivity, and managers' perceptions of the ease of hiring qualified workers; they are negatively associated with job vacancy rates and training time. Although the magnitudes of some of these relationships are not large, in combination they suggest that high-wage firms can sometimes offset more than half of their higher wage costs through improved productivity and lower hiring and turnover costs. The effects are generally stronger for firms that have chosen high wage levels than for firms in which unions have imposed high wage levels. (Abstract courtesy JSTOR.)

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Bibliographic Info

Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 43 (1990)
Issue (Month): 3 (February)
Pages: 147-164

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Handle: RePEc:ilr:articl:v:43:y:1990:i:3:p:147-164

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References

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  1. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
  2. Ronald G. Ehrenberg & George T. Milkovich, 1987. "Compensation and Firm Performance," NBER Working Papers 2145, National Bureau of Economic Research, Inc.
  3. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-90, September.
  4. Albrecht, James W & Axell, Bo, 1984. "An Equilibrium Model of Search Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 824-40, October.
  5. Jacob Mincer, 1981. "Union Effects: Wages, Turnover, and Job Training," NBER Working Papers 0808, National Bureau of Economic Research, Inc.
  6. Charles Brown, 1990. "Firms' Choice of Method of Pay," NBER Working Papers 3065, National Bureau of Economic Research, Inc.
  7. Weiss, Andrew, 1988. "High School Graduation, Performance, and Wages," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 785-820, August.
  8. Harry Holzer & Lawrence Katz & Alan Krueger, 1988. "Job Queues and Wages: New Evidence on the Minimum Wage and Inter-Industry Wage Structure," Working Papers 610, Princeton University, Department of Economics, Industrial Relations Section..
  9. Johnson, George E, 1975. "Economic Analysis of Trade Unionism," American Economic Review, American Economic Association, vol. 65(2), pages 23-28, May.
  10. Jonathan S. Leonard, 1987. "Carrots and Sticks: Pay, Supervision and Turnover," NBER Working Papers 2176, National Bureau of Economic Research, Inc.
  11. Daniel M.G. Raff & Lawrence H. Summers, 1986. "Did Henry Ford Pay Efficiency Wages?," NBER Working Papers 2101, National Bureau of Economic Research, Inc.
  12. William T. Dickens, 1986. "Wages, Employment and the Threat of Collective Action by Workers," NBER Working Papers 1856, National Bureau of Economic Research, Inc.
  13. Holzer, Harry J & Katz, Lawrence F & Krueger, Alan B, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 739-68, August.
  14. Bishop, John, 1987. "The Recognition and Reward of Employee Performance," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S36-56, October.
  15. Barron, John M & Bishop, John & Dunkelberg, William C, 1985. "Employer Search: The Interviewing and Hiring of New Employees," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 43-52, February.
  16. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  17. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
  18. Harry J. Holzer, 1988. "The Determinants of Employee Productivity and Earnings: Some New Evidence," NBER Working Papers 2782, National Bureau of Economic Research, Inc.
  19. Lindbeck, Assar & Snower, Dennis J, 1986. "Wage Setting, Unemployment, and Insider-Outsider Relations," American Economic Review, American Economic Association, vol. 76(2), pages 235-39, May.
  20. Viscusi, W Kip, 1980. "Sex Differences in Worker Quitting," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 388-98, August.
  21. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1989. "Job Matching and On-the-Job Training," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 1-19, January.
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Citations

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Cited by:
  1. Lundborg, Per, 2005. "Individual Wage Setting, Efficiency Wages and Productivity in Sweden," Working Paper Series 205, Trade Union Institute for Economic Research.
  2. Levine, David I., 1991. "You Get What You Pay For: Tests of Efficency Wage Theories in the United States and Japan," Institute for Research on Labor and Employment, Working Paper Series qt9t02v034, Institute of Industrial Relations, UC Berkeley.
  3. Seref Saygili, 1998. "Is the Efficiency Wage Hypothesis Valid for Developing Countries? Evidence from the Turkish Cement Industry," Studies in Economics 9810, Department of Economics, University of Kent.
  4. Ana María Iregui & Ligia Alba Melo & María Teresa Ramírez, 2009. "Formación e incrementos de salarios en Colombia: Un estudio microeconómico a partir de una encuesta a nivel de firma," BORRADORES DE ECONOMIA 006286, BANCO DE LA REPÚBLICA.
  5. Marc Blatter & Samuel Muehlemann & Samuel Schenker, 2008. "The Costs of Hiring Skilled Workers," Economics of Education Working Paper Series 0015, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Nov 2009.
  6. Welters, Riccardo & Muysken, Joan, 2008. "Inferring Employer Search Behaviour from Wage Subsidy Participation," Labour Economics, Elsevier, vol. 15(5), pages 844-858, October.
  7. Harry J. Holzer, 1990. "Job Vacancy Rates in the Firm: An Empirical Analysis," NBER Working Papers 3524, National Bureau of Economic Research, Inc.
  8. Holzer, Harry J & Montgomery, Edward B, 1993. "Asymmetries and Rigidities in Wage Adjustments by Firms," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 397-408, August.
  9. Peter Cappelli & Steffi L Wilk, 1997. "Understanding Selection Processes: Organization Determinants and Performance Outcomes," Working Papers 97-14, Center for Economic Studies, U.S. Census Bureau.
  10. Sonia Bhalotra, 2006. "Near rationality in wage setting," Applied Economics, Taylor & Francis Journals, vol. 38(21), pages 2513-2521.

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