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Efficiency Wages and Employment Rents: The Employer-Size Wage Effect in the Job Market for Lawyers

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  • Rebitzer, James B
  • Taylor, Lowell J

Abstract

The 'efficiency wage hypothesis' offers an explanation for employment rents. According to this hypothesis, firms pay wages above the opportunity cost of labor to elicit productivity or quality-enhancing behaviors from employees. Firms pursue this strategy when alternative incentive schemes are unavailable or too costly. Thus, firms will not pay premium wages when employees post sufficiently large performance bonds. This article examines employment rents in a setting where employees post sizable performance bonds--large law firms. Contrary to the efficiency wage hypothesis, the authors find that associates in these large firms post substantial performance bonds while also receiving substantial, ex ante rents. Copyright 1995 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 13 (1995)
Issue (Month): 4 (October)
Pages: 678-708

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Handle: RePEc:ucp:jlabec:v:13:y:1995:i:4:p:678-708

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Web page: http://www.journals.uchicago.edu/JOLE/

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Cited by:
  1. Alexander K. Koch & Eloic Peyrache, 2005. "Aligning Ambition and Incentives," Royal Holloway, University of London: Discussion Papers in Economics 05/03, Department of Economics, Royal Holloway University of London, revised Mar 2005.
  2. James B. Rebitzer & Lowell J. Taylor, 2006. "When Knowledge is an Asset: Explaining the Organizational Structure of Large Law Firms," NBER Working Papers 12583, National Bureau of Economic Research, Inc.
  3. Ann Bartel & Brianna Cardiff-Hicks & Kathryn Shaw, 2013. "Compensation Matters: Incentives for Multitasking in a Law Firm," NBER Working Papers 19412, National Bureau of Economic Research, Inc.
  4. Volker Mahnke, 2001. "The Process of Vertical Dis-Integration: An Evolutionary Perspective on Outsourcing," Journal of Management and Governance, Springer, vol. 5(3), pages 353-379, September.
  5. McNabb, Robert & Wass, Victoria, 2006. "Male-female earnings differentials among lawyers in Britain: a legacy of the law or a current practice?," Labour Economics, Elsevier, vol. 13(2), pages 219-235, April.
  6. James B. Rebitzer & Lowell J. Taylor, 2010. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches To Agency and Labor Markets," Economics Working Paper Archive wp_607, Levy Economics Institute.
  7. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Working Papers 1997-006, Federal Reserve Bank of St. Louis.
  8. Pull, Kerstin, 1999. "What is the fair wage? A model of as-if-co-operation," Quint-Essenzen 58, Institute for Labour Law and Industrial Relations in the European Community (IAAEG), University of Trier.
  9. Nuno Garoupa & Fernando Gómez, 2002. "Cashing by the hour: Why large law firms prefer hourly fees over contingent fees," Economics Working Papers 639, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-21.
  11. Clive Belfield & Xiangdong Wei, 2004. "Employer size-wage effects: evidence from matched employer-employee survey data in the UK," Applied Economics, Taylor & Francis Journals, vol. 36(3), pages 185-193.
  12. Koch, Alexander K. & Peyrache, Eloic, 2005. "Tournaments, Individualized Contracts and Career Concerns," IZA Discussion Papers 1841, Institute for the Study of Labor (IZA).

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