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Efficiency Wages And Subjective Performance Pay

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  • HUANXING YANG

Abstract

"This paper studies optimal relational contracts in motivating workers in a market setting. We find that labor markets with higher turnover costs will use more subjective performance pay and less efficiency wages and that in those markets, the total wage payment is lower and the equilibrium employment level is higher. Surprisingly, under certain conditions, an increase in turnover costs leads to higher social welfare. Incorporating workers' search costs, we show that wages are procyclical in booms and are either rigid or countercyclical during recessions. The predictions of the model are consistent with some empirical evidence. "("JEL "D82, J33, J41, J63) Copyright (c) 2007 Western Economic Association International.

Suggested Citation

  • Huanxing Yang, 2008. "Efficiency Wages And Subjective Performance Pay," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 179-196, April.
  • Handle: RePEc:bla:ecinqu:v:46:y:2008:i:2:p:179-196
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    References listed on IDEAS

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    1. Bratsberg, Bernt & Turunen, Jarkko, 1996. "Wage curve evidence from panel data," Economics Letters, Elsevier, vol. 51(3), pages 345-353, June.
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    Cited by:

    1. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," CESifo Working Paper Series 3826, CESifo Group Munich.
    2. Fahn, Matthias, 2011. "Three Essays on Commitment and Information Problems," Munich Dissertations in Economics 13750, University of Munich, Department of Economics.
    3. Peter Cappelli & Martin Conyon, 2016. "What Do Performance Appraisals Do?," NBER Working Papers 22400, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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