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Efficiency Wage Theories: A Partial Evaluation

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  • Lawrence F. Katz

Abstract

This paper surveys recent developments in the literature on efficiency wage theories of unemployment. Efficiency wage models have in common the property that in equilibrium firms may find it profitable to pay wages in excess of market clearing. High wages can help reduce turnover, elicit worker effort, prevent worker collective action, and attract higher quality employees. Simple versions of efficiency wage models can explain normal involuntary unemployment,segmented labor markets, and wage differentials across firms and industries for workers with similar productive characteristics. Deferred payment schemes andother labor market bonding mechanisms appear to be able to solve some efficiency wage problems without resultant job rationing and involuntary unemployment. A wide variety of evidence on inter-industry wage differences is analyzed. Efficiency wage models appear useful in explaining the observed pattern of wage differentials.The models also provide several potential mechanisms for cyclical fluctuations in response to aggregate demand shocks.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1906.

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Date of creation: Apr 1986
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Publication status: published as Fischer, Stanley (ed.) NBER Macroeconomics Annual 1986. Cambridge, MA: MIT Press, 1986.
Handle: RePEc:nbr:nberwo:1906

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  1. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
  2. Calvo, Guillermo, 1979. "Quasi-Walrasian Theories of Unemployment," American Economic Review, American Economic Association, vol. 69(2), pages 102-07, May.
  3. Olivier J. Blanchard & Nobuhiro Kiyotaki, 1985. "Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money," NBER Working Papers 1770, National Bureau of Economic Research, Inc.
  4. Joseph G. Altonji & Robert A. Shakotko, 1985. "Do Wages Rise With Job Seniority?," NBER Working Papers 1616, National Bureau of Economic Research, Inc.
  5. Ben S. Bernanke & James L. Powell, 1984. "The Cyclical Behavior of Industrial Labor Markets: A Comparison of the Pre-War and Post-War Eras," NBER Working Papers 1376, National Bureau of Economic Research, Inc.
  6. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-22, June.
  8. William T. Dickens, 1986. "Wages, Employment and the Threat of Collective Action by Workers," NBER Working Papers 1856, National Bureau of Economic Research, Inc.
  9. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-89, August.
  10. Farrell Bloch & Mark S. Kuskin, 1978. "Wage determination in the union and nonunion sectors," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 31(2), pages 183-192, January.
  11. Calvo, Guillermo A & Wellisz, Stanislaw, 1978. "Supervision, Loss of Control, and the Optimum Size of the Firm," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 943-52, October.
  12. William T. Dickens & Lawrence F. Katz & Kevin Lang, 1986. "Are Efficiency Wages Efficient?," NBER Working Papers 1935, National Bureau of Economic Research, Inc.
  13. Bowles, Samuel, 1985. "The Production Process in a Competitive Economy: Walrasian, Neo-Hobbesian, and Marxian Models," American Economic Review, American Economic Association, vol. 75(1), pages 16-36, March.
  14. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc.
  15. William T. Dickens & Kevin Lang, 1985. "A Test of Dual Labor Market Theory," NBER Working Papers 1314, National Bureau of Economic Research, Inc.
  16. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  17. Steven G. Allen, 1984. "Trade unions, absenteeism, and exit-voice," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 37(3), pages 331-345, April.
  18. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
  19. repec:fth:prinin:187 is not listed on IDEAS
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