IDEAS home Printed from
   My bibliography  Save this article

Efficiency Wages and Employment Rents: The Employer-Size Wage Effect in the Job Market for Lawyers


  • Rebitzer, James B
  • Taylor, Lowell J


The 'efficiency wage hypothesis' offers an explanation for employment rents. According to this hypothesis, firms pay wages above the opportunity cost of labor to elicit productivity or quality-enhancing behaviors from employees. Firms pursue this strategy when alternative incentive schemes are unavailable or too costly. Thus, firms will not pay premium wages when employees post sufficiently large performance bonds. This article examines employment rents in a setting where employees post sizable performance bonds--large law firms. Contrary to the efficiency wage hypothesis, the authors find that associates in these large firms post substantial performance bonds while also receiving substantial, ex ante rents. Copyright 1995 by University of Chicago Press.

Suggested Citation

  • Rebitzer, James B & Taylor, Lowell J, 1995. "Efficiency Wages and Employment Rents: The Employer-Size Wage Effect in the Job Market for Lawyers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 678-708, October.
  • Handle: RePEc:ucp:jlabec:v:13:y:1995:i:4:p:678-708

    Download full text from publisher

    File URL:
    File Function: full text
    Download Restriction: Access to full text is restricted to subscribers. See for details.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Levine, David I, 1992. "Can Wage Increases Pay for Themselves? Tests with a Production Function," Economic Journal, Royal Economic Society, vol. 102(414), pages 1102-1115, September.
    2. Bowles, Samuel, 1985. "The Production Process in a Competitive Economy: Walrasian, Neo-Hobbesian, and Marxian Models," American Economic Review, American Economic Association, vol. 75(1), pages 16-36, March.
    3. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. James B. Rebitzer & Lowell J. Taylor, 2007. "When Knowledge Is an Asset: Explaining the Organizational Structure of Large Law Firms," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 201-229.
    2. Clive Belfield & Xiangdong Wei, 2004. "Employer size-wage effects: evidence from matched employer-employee survey data in the UK," Applied Economics, Taylor & Francis Journals, vol. 36(3), pages 185-193.
    3. Rebitzer, James B. & Taylor, Lowell J., 2011. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets," Handbook of Labor Economics, Elsevier.
    4. Pull, Kerstin, 1999. "What is the fair wage? A model of as-if-co-operation," Quint-Essenzen 58, University of Trier, Institute for Labour Law and Industrial Relations in the European Community (IAAEG).
    5. Volker Mahnke, 2001. "The Process of Vertical Dis-Integration: An Evolutionary Perspective on Outsourcing," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 5(3), pages 353-379, September.
    6. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    7. Koch, Alexander K. & Peyrache, Eloic, 2005. "Tournaments, Individualized Contracts and Career Concerns," IZA Discussion Papers 1841, Institute for the Study of Labor (IZA).
    8. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-21.
    9. Nuno Garoupa & Fernando Gómez, 2002. "Cashing by the hour: Why large law firms prefer hourly fees over contingent fees," Economics Working Papers 639, Department of Economics and Business, Universitat Pompeu Fabra.
    10. McNabb, Robert & Wass, Victoria, 2006. "Male-female earnings differentials among lawyers in Britain: a legacy of the law or a current practice?," Labour Economics, Elsevier, vol. 13(2), pages 219-235, April.
    11. Alexander K. Koch & Eloïc Peyrache, 2011. "Aligning Ambition and Incentives," Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(3), pages 655-688.
    12. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    13. Boylan, Richard T & Long, Cheryl X, 2005. "Salaries, Plea Rates, and the Career Objectives of Federal Prosecutors," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 627-651, October.
    14. Michael, Bryane & Falzon, Joseph & Shamdasani, Ajay, 2015. "A Theory of Financial Services Competition, Compliance and Regulation," EconStor Preprints 107400, ZBW - German National Library of Economics.
    15. Ann Bartel & Brianna Cardiff-Hicks & Kathryn Shaw, 2013. "Compensation Matters: Incentives for Multitasking in a Law Firm," NBER Working Papers 19412, National Bureau of Economic Research, Inc.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jlabec:v:13:y:1995:i:4:p:678-708. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.