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You Get What You Pay For: Tests of Efficency Wage Theories in the United States and Japan

  • Levine, David I.

This paper utilizes a rich data set on workers and their employers in the US and Japan to test several predictions of efficiency wage theories. The data set incorporates numerous objective and subjective performance measures including turnover, effort, absences, satisfaction, and commitment. It also contains extremely good measures of establishment, worker, and job characteristics. For almost all of the performance measures in both countries efficiency wage theories are supported; that is, workers receiving particularly high wages given their observable characteristics report that they are less likely to quit, more satisfied with their pay, and so forth. The between-establishment component of wages is a more reliable predictor of performance than the within-establishment component.

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Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt9t02v034.

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Date of creation: 01 Apr 1991
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Handle: RePEc:cdl:indrel:qt9t02v034
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Web page: http://www.escholarship.org/repec/iir_iirwps/

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  1. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  2. Blinder, Alan S, 1988. "The Challenge of High Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 1-15, May.
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  4. Lang, Kevin, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 181-202, February.
  5. Wadhwani, Sushil B & Wall, Martin, 1991. "A Direct Test of the Efficiency Wage Model Using UK Micro-data," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 529-48, October.
  6. Steven G. Allen, 1984. "Trade unions, absenteeism, and exit-voice," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 37(3), pages 331-345, April.
  7. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  8. William T. Dickens, 1986. "Wages, Employment and the Threat of Collective Action by Workers," NBER Working Papers 1856, National Bureau of Economic Research, Inc.
  9. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
  10. Harry J. Holzer, 1990. "Wages, employer costs, and employee performance in the firm," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 147-164, February.
  11. Freeman, Richard B, 1980. "The Exit-Voice Tradeoff in the Labor Market: Unionism, Job Tenure, Quits, and Separations," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 643-73, June.
  12. Rebitzer, James B, 1988. "Unemployment, Labor Relations, and Unit Labor Costs," American Economic Review, American Economic Association, vol. 78(2), pages 389-94, May.
  13. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March.
  14. Leonard, Jonathan S, 1987. "Carrots and Sticks: Pay, Supervision, and Turnover," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S136-52, October.
  15. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  16. George A. Akerlof & Andrew K. Rose & Janet L. Yellen, 1988. "Job Switching and Job Satisfaction in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 495-594.
  17. William T. Dickens & Brian A. Ross, 1984. "Consistent Estimation Using Data From More Than One Sample," NBER Technical Working Papers 0033, National Bureau of Economic Research, Inc.
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