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Why Should Human Resource Managers Pay High Wages?


  • Ulman, Lloyd


This essay is about human resource management, internal labor markets, and assorted theories of wage behavior. A stereotype of managerial activities and policies is sketched out in the first section, which, although reflecting a parochial (U.S.) orientation, is intended to approximate a set of real-world conditions to which analyses of labor market behavior should presumably relate. In the second section, we consider "institutionalist" interpretations, which either .supplement or challenge standard market analysis by appeal to the historical record, the behavioral sciences, or even the consensus of expert behavior. In particular, the importance of "conventional" forces, based heavily on perceptions of equity, interpersonal preferences, and custom and practice, is revealed by the scholarship and insights of Henry Phelps Brown. Next (section II) are assessed the claims and contributions of a sample of theories based on the assumption of individualistic utility maximization in competitive markets: the theories of equalizing wage differentials, human capital, deferred compensation, transaction costs, implicit contracts, and (least conventional) efficiency wages. None is found to be lacking in interpretive value or relevance to one or more attributes of the stereotype, and all help to relate it to a wider family of markets and to economic behavior. In general, however, this group is less satisfactory in explaining why wages should be high enough—in a present value sense and relative to market-clearing levels—to contribute to the relative insulation of internal labor markets and to restrict employment. An exception is provided by efficiency wage theory, in particular by one of its older variants which, because it is based on group (rather than individualistic) psychology and behavior, is discussed in the following section (V).

Suggested Citation

  • Ulman, Lloyd, 1992. "Why Should Human Resource Managers Pay High Wages?," Institute for Research on Labor and Employment, Working Paper Series qt8378t1rz, Institute of Industrial Relations, UC Berkeley.
  • Handle: RePEc:cdl:indrel:qt8378t1rz

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    References listed on IDEAS

    1. George A. Akerlof & Hajime Miyazaki, 1980. "The Implicit Contract Theory of Unemployment meets the Wage Bill Argument," Review of Economic Studies, Oxford University Press, vol. 47(2), pages 321-338.
    2. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    3. Lloyd Ulman, 1965. "Labor Mobility and the Industrial Wage Structure in the Postwar United States," The Quarterly Journal of Economics, Oxford University Press, vol. 79(1), pages 73-97.
    4. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, Oxford University Press, vol. 95(4), pages 703-736.
    5. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
    6. Pugel, Thomas A, 1980. "Profitability, Concentration and the Interindustry Variation in Wages," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 248-253, May.
    7. Kahn, Charles M. & Green, Jerry, 1983. "Wage-Employment Contracts," Scholarly Articles 3203642, Harvard University Department of Economics.
    8. James E. Long & Albert N. Link, 1983. "The Impact of Market Structure on Wages, Fringe Benefits, and Turnover," ILR Review, Cornell University, ILR School, vol. 36(2), pages 239-250, January.
    9. John E. Kwoka Jr., 1983. "Monopoly, Plant, and Union Effects on Worker Wages," ILR Review, Cornell University, ILR School, vol. 36(2), pages 251-257, January.
    10. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
    11. Parsons, Donald O, 1972. "Specific Human Capital: An Application to Quit Rates and Layoff Rates," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1120-1143, Nov.-Dec..
    12. Charles Brown, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 94(1), pages 113-134.
    13. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    14. Erica L. Groshen, 1991. "Sources of Intra-Industry Wage Dispersion: How Much Do Employers Matter?," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 869-884.
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