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Wages, Employer Costs, and Employee Performance in the Firm

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  • Harry J. Holzer

Abstract

In this paper I use data from a survey of firms to estimate the effects of a firm's wage level on several measures of its hiring costs and the characteristics and performance of its employees. These measures include the previous experience and current tenure of its employees; subjective productivity scores for these employees; job vacancy rates; perceived ease of hiring qualified workers for the firs; and hours spent hiring and training new workers. In doing so, I distinguish the case of high wages imposed on s firm by unions from that in which the firm might be choosing its wage level in order to maximize its profits. I also provide some rough measures of the extent to which firms offset their high wage costs in each case. The results show generally positive effects of firm wages on employee experience and tenure as well as on subjective productivity scores. The firm's wages generally have negative effects on job vacancy rates and positive effects on the perceived ease of hiring qualified workers. Training time is also reduced. While the magnitude of each individual effect may not always be large or even significant, their combined effects suggest that firms offset a good deal of their higher wage costs through improved productivity and lower hiring and turnover costs among their employees.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2830.

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Date of creation: Apr 1990
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Handle: RePEc:nbr:nberwo:2830

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References

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  1. Albrecht, James W & Axell, Bo, 1983. "An Equilibrium Model of Search Unemployment," Working Paper Series 99, Research Institute of Industrial Economics.
  2. 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..
  3. Leonard, Jonathan S, 1987. "Carrots and Sticks: Pay, Supervision, and Turnover," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S136-52, October.
  4. Johnson, George E, 1975. "Economic Analysis of Trade Unionism," American Economic Review, American Economic Association, vol. 65(2), pages 23-28, May.
  5. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Working Papers 1906, National Bureau of Economic Research, Inc.
  6. 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.
  7. Ronald G. Ehrenberg & George T. Milkovich, 1987. "Compensation and Firm Performance," NBER Working Papers 2145, National Bureau of Economic Research, Inc.
  8. Raff, Daniel M G & Summers, Lawrence H, 1987. "Did Henry Ford Pay Efficiency Wages?," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S57-86, October.
  9. Viscusi, W Kip, 1980. "Sex Differences in Worker Quitting," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 388-98, August.
  10. 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.
  11. 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.
  12. Harry J. Holzer, 1988. "The Determinants of Employee Productivity and Earnings: Some New Evidence," NBER Working Papers 2782, National Bureau of Economic Research, Inc.
  13. William T. Dickens, 1986. "Wages, Employment and the Threat of Collective Action by Workers," NBER Working Papers 1856, National Bureau of Economic Research, Inc.
  14. Charles Brown, 1990. "Firms' choice of method of pay," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 165-182, February.
  15. 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.
  16. 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.
  17. Jacob Mincer, 1981. "Union Effects: Wages, Turnover, and Job Training," NBER Working Papers 0808, National Bureau of Economic Research, Inc.
  18. 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.
  19. 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.
  20. 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.
  21. Weiss, Andrew, 1988. "High School Graduation, Performance, and Wages," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 785-820, August.
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Citations

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Cited by:
  1. Sonia Bhalotra, 2006. "Near rationality in wage setting," Applied Economics, Taylor & Francis Journals, vol. 38(21), pages 2513-2521.
  2. Blatter, Marc & Muehlemann, Samuel & Schenker, Samuel, 2012. "The costs of hiring skilled workers," European Economic Review, Elsevier, vol. 56(1), pages 20-35.
  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, . "Formación e incrementos de salarios en Colombia: Un estudio microeconómico a partir de una encuesta a nivel de firma," Borradores de Economia 582, Banco de la Republica de Colombia.
  5. Lundborg, Per, 2005. "Individual Wage Setting, Efficiency Wages and Productivity in Sweden," Working Paper Series 205, Trade Union Institute for Economic Research.
  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. 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.
  9. 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.
  10. 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.

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