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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.

Suggested Citation

  • Harry J. Holzer, 1989. "Wages, Employer Costs, and Employee Performance in the Firm," NBER Working Papers 2830, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2830
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    2. Ana María Iregui & Ligia Alba Melo & María Teresa Ramírez, 2009. "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.
    3. 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.
    4. Michael H Belzer, 2018. "Work-stress factors associated with truck crashes: An exploratory analysis," The Economic and Labour Relations Review, , vol. 29(3), pages 289-307, September.
    5. Blatter, Marc & Muehlemann, Samuel & Schenker, Samuel, 2012. "The costs of hiring skilled workers," European Economic Review, Elsevier, vol. 56(1), pages 20-35.
    6. Seref Saygili, 1998. "Is the Efficiency Wage Hypothesis Valid for Developing Countries? Evidence from the Turkish Cement Industry," Studies in Economics 9810, School of Economics, University of Kent.
    7. 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.
    8. Thomas Schwedler, 1991. "Abbau institutioneller Machtfaktoren auf Arbeitsmärkten als Mittel gegen die Arbeitslosigkeit?," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 17(2), pages 199-227.
    9. Han, Xiaomei & Wang, Jie & Cheng, Hanxiu, 2021. "The effect of corporate tax avoidance on salary distribution——Empirical evidence from publicly listed companies in China," International Review of Financial Analysis, Elsevier, vol. 78(C).
    10. Lundborg, Per, 2005. "Individual Wage Setting, Efficiency Wages and Productivity in Sweden," Working Paper Series 205, Trade Union Institute for Economic Research.
    11. Welters, Riccardo & Muysken, Joan, 2008. "Inferring Employer Search Behaviour from Wage Subsidy Participation," Labour Economics, Elsevier, vol. 15(5), pages 844-858, October.
    12. Thomas Schwedler, 1991. "Abbau institutioneller Machtfaktoren auf Arbeitsmärkten als Mittel gegen die Arbeitslosigkeit? Einige mikro- und makroökonomische Aspekte der Deregulierungsdiskussion," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 17(2), pages 199-228.
    13. Sonia Bhalotra, 2006. "Near rationality in wage setting," Applied Economics, Taylor & Francis Journals, vol. 38(21), pages 2513-2521.
    14. Laura Inés D'Amato & Enrique López Enciso & María Teresa Ramírez Giraldo (ed.), 2013. "Dinámica inflacionaria, persistencia y formación de precios y salarios," Investigación Conjunta-Joint Research, Centro de Estudios Monetarios Latinoamericanos, CEMLA, edition 1, volume 1, number 2, December.

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