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The Interaction Between Efficiency Wage Theories and Labour Turnover Costs

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  • Eric Toulemonde

Abstract

We develop a simple model to illustrate how the effects of turnover costs on wages can be reinforced by an efficiency wage effect. The insider–outsider theory explains why labour turnover costs allow the insiders to earn higher wages than outsiders. According to the efficiency wage theory, higher wages enhance the insiders’ productivity. Therefore, the costs of replacing an insider by a low–paid, low–productivity outsider are increased, which allows the insiders to raise their wages further. Again, higher wages increase insiders’ productivity, which allows them to earn still higher wages, and so on. Thus, the existence of a link between effort and wages can reinforce the effects of labour turnover costs on wages.

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  • Eric Toulemonde, 2003. "The Interaction Between Efficiency Wage Theories and Labour Turnover Costs," Bulletin of Economic Research, Wiley Blackwell, vol. 55(2), pages 203-208, April.
    • Handle: RePEc:bla:buecrs:v:55:y:2003:i:2:p:203-208
    DOI: 10.1111/1467-8586.00170
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    References listed on IDEAS

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    7. Hendricks, Wallace E & Kahn, Lawrence M, 1991. "Efficiency Wages, Monopoly Unions and Efficient Bargaining," Economic Journal, Royal Economic Society, vol. 101(408), pages 1149-1162, September.
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    Cited by:

    1. Manuel David Cruz, 2022. "Labor productivity, real wages, and employment: evidence from a panel of OECD economies over 1960-2019," Working Papers PKWP2203, Post Keynesian Economics Society (PKES).

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