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Motivation and markets

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  • MacLeod, W.B.
  • Malcomson, J.M.

Abstract

Many workers receive pay based on subjectively assessed performance, yet the shirking model of efficiency wages excludes it. This paper incorporates such pay, with the following results. Performance pay is more efficient than efficiency wages when the costs of having a job vacant are low and qualified workers in short supply. More capitl-intensive industries pay more than less capital-intensive industries, as observed in studies of interindustry wages differentials. Sustaining an efficient outcome requires a social convention similar to the notion of a fair wage. The model also makes predictions about the relationship between turnover, wages, growth and unemployment.

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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9720.

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Date of creation: 01 Jan 1997
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Handle: RePEc:stn:sotoec:9720

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  1. 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.
  2. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 2001. "Reciprocity as a Contract Enforcement Device," Levine's Working Paper Archive 563824000000000143, David K. Levine.
  3. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  4. William T. Dickens & Lawrence F. Katz, 1987. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. 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.
  8. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  9. Raff, Daniel M.G., 1988. "Wage Determination Theory and the Five-Dollar Day at Ford," The Journal of Economic History, Cambridge University Press, vol. 48(02), pages 387-399, June.
  10. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  11. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  12. W. Bentley MacLeod, 1997. "Complexity, Contract and the Employment Relationship," Boston College Working Papers in Economics 342., Boston College Department of Economics.
  13. Moene, Karl Ove, 1988. "A reformulation of the Harris-Todaro mechanism with endogenous wages," Economics Letters, Elsevier, vol. 27(4), pages 387-390.
  14. 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.
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