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Job Rents in a Stylized Labor Market

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  • Schlicht, Ekkehart

Abstract

Wage formation is often analyzed by assuming that wage differentials reflect productivity differentials intrinsic to the workers, like differences in skill or qualification. Observed industry and firm effects on wages suggests, however, that wage differentials may result from causes rather unrelated to intrinsic productivity. This paper considers the polar case of homogeneous labor. The wage differentials emerging here are, thus, unrelated to individual differences. The model used is of an economy with a segmented labor market in which the primary sector industries are characterized by high turnover costs. This induces firms to pay efficiency wages reflecting turnover costs. The turnover case offers some rather surprising yet straightforward conclusions regarding efficiency, discrimination and taxation: Workers capture job rents; wage dispersion is too high; considerable wage differentials may arise from infinitesimally small differences in productivity; and a progressive wage tax will be welfare-enhancing.

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This chapter was published in: Schlicht, Ekkehart , , pages , .

This item is provided by University of Munich, Department of Economics in its series Chapters in Economics with number 1254.

Handle: RePEc:lmu:muench:1254

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Related research

Keywords: wage structure; efficiency wages; dual labor market; discrimination; turnover; wage taxation; income taxation;

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References

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  1. Albrecht, James W. & Vroman, Susan B., 1990. "Dual Labor Markets, Efficiency Wages, and Search," Working Paper Series 267, Research Institute of Industrial Economics.
  2. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  3. Campbell, Carl M, III, 1993. "Do Firms Pay Efficiency Wages? Evidence with Data at the Firm Level," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 442-70, July.
  4. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
  5. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
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  7. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March.
  8. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1996. "Reciprocal fairness and noncompensating wage differentials," ULB Institutional Repository 2013/5921, ULB -- Universite Libre de Bruxelles.
  9. Jeremy I. Bulow & Lawrence H. Summers, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc.
  10. Schlicht, Ekkehart, 1978. "Labour Turnover, Wage Structure, and Natural Unemployment," Munich Reprints in Economics 1255, University of Munich, Department of Economics.
  11. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  12. Schlicht, Ekkehart, 1981. "Training Costs and Wage Differentials in the Theory of Job Competition," Munich Reprints in Economics 1347, University of Munich, Department of Economics.
  13. Schlicht, Ekkehart & Weizsäcker, Carl Christian von, 1977. "Risk Financing in Labour Managed Economics: The Commitment Problem," Munich Reprints in Economics 3148, University of Munich, Department of Economics.
  14. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  15. Blackburn, McKinley & Neumark, David, 1992. "Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1421-36, November.
  16. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
  17. Joanne Salop & Steve Salop, 1976. "Self-selection and turnover in the labor market," Special Studies Papers 80, Board of Governors of the Federal Reserve System (U.S.).
  18. Michael Hoel, 1990. "Efficiency wages and income taxes," Journal of Economics, Springer, vol. 51(1), pages 89-99, February.
  19. Thaler, Richard H, 1989. "Interindustry Wage Differentials," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 181-93, Spring.
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Cited by:
  1. Schlicht, Ekkehart, 2006. "Selection Wages: An Example," IZA Discussion Papers 2507, Institute for the Study of Labor (IZA).
  2. Schlicht, Ekkehart, 2006. "Selection Wages: An Illustration," Discussion Papers in Economics 958, University of Munich, Department of Economics.

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