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Carrots and Sticks: Pay, Supervision and Turnover

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  • Jonathan S. Leonard

Abstract

Large and persistent differences across industries in wages paid for given occupations have commonly been observed. Recently, the efficiency wage model (EWM) has been advanced as an explanation for these wage differentials. The shirking version of the EWM assumes a trade-off between self-supervision and external supervision. The turnover version assumes turnover is costly to the firm. Variation across firms in the cost of monitoring/shirking or turnover then are hypothesized to account for wage variation across firms for homogeneous workers. This paper presents empirical evidence of the trade-off of wage premiums for supervisory intensity and turnover. A new sample of 200 firms in one sector in one state in 1982 is analyzed. Little evidence is found to support either version of EWM. The substantial variation in wages for narrowly defined occupations across firms remains largely unexplained.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2176.

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Date of creation: Feb 1987
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Publication status: published as Leonard, Jonathan S. "Carrots and Sticks: Pay, Supervision and Turnover," Journal of Labor Economics, Vol. 5, No. 4, Part 2, October 1987, pp. 5136-5 152.
Handle: RePEc:nbr:nberwo:2176

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  1. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc.
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