Investigating Rationality in Wage-Setting
This paper investigates the efficiency wage hypothesis and derives a tractable expression for the profit loss incurred by deviations from the efficiency wage. The extent of the wage deviation can be inferred from production function parameters. The resulting profit loss shown to depend upon the curvature of th effort function and the employment and wage elasticities of output. If the profit loss is small then near rationality may be claimed even if the hypothesis of rationality is statistically rejected. An application to Indian manufacturing is presented, which suggests that rationality cannot be rejected and that the profit function is remarkably flat aroung the optimum. This is consistent with positive effort returns to increasing the wage beyond its efficient level.
(This abstract was borrowed from another version of this item.)
|Date of creation:||01 Aug 2000|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
- Cochrane, John H, 1989.
"The Sensitivity of Tests of the Intertemporal Allocation of Consumption to Near-Rational Alternatives,"
American Economic Review,
American Economic Association, vol. 79(3), pages 319-37, June.
- John H. Cochrane, 1988. "The Sensitivity of Tests of the Intertemporal Allocation of Consumption to Near-Rational Alternatives," NBER Working Papers 2730, National Bureau of Economic Research, Inc.
- Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
- George A. Akerlof, 1979. "Irving Fisher on his Head: The Consequences of Constant Threshold-Target Monitoring of Money Holdings," The Quarterly Journal of Economics, Oxford University Press, vol. 93(2), pages 169-187.
- Joseph E. Stiglitz, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC's: The Labor Turnover Model," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 194-227.
- George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
- Mazumdar, Dipak, 1976. "The Rural-Urban Wage Gap, Migration, and the Shadow Wage," Oxford Economic Papers, Oxford University Press, vol. 28(3), pages 406-25, November.
- Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-20, September.
- 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.
- D. Mazumdar, 1973. "Labour Supply in Early Industrialization: the Case of the Bombay Textile Industry," Economic History Review, Economic History Society, vol. 26(3), pages 477-496, 08.
- Lawrence F. Katz, 1986.
"Efficiency Wage Theories: A Partial Evaluation,"
NBER Working Papers
1906, National Bureau of Economic Research, Inc.
- ZELLNER, Arnold & KMENTA, Jan & DREZE, Jacques H., . "Specification and estimation of Cobb-Douglas production function models," CORE Discussion Papers RP 12, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- George A. Akerlof & Janet L. Yellen, 1985. "A Near-Rational Model of the Business Cycle, with Wage and Price Inertia," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 823-838.
- William T. Dickens, 1986. "Wages, Employment and the Threat of Collective Action by Workers," NBER Working Papers 1856, National Bureau of Economic Research, Inc.
- M. S. Feldstein, 1967. "Specification of the Labour Input in the Aggregate Production Function," Review of Economic Studies, Oxford University Press, vol. 34(4), pages 375-386.
- Levine, David I, 1992. "Can Wage Increases Pay for Themselves? Tests with a Production Function," Economic Journal, Royal Economic Society, vol. 102(414), pages 1102-15, September.
- Muellbauer, John, 1984. "Aggregate Production Functions and Productivity Measurement: A New Look," CEPR Discussion Papers 34, C.E.P.R. Discussion Papers.
- Griliches, Zvi & Hausman, Jerry A., 1986.
"Errors in variables in panel data,"
Journal of Econometrics,
Elsevier, vol. 31(1), pages 93-118, February.
- Bhalotra, Sonia R., 1998. "Changes in utilization and productivity in a deregulating economy," Journal of Development Economics, Elsevier, vol. 57(2), pages 391-420.
- Manuel Arellano & Stephen Bond, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Bhalotra, Sonia R, 1998. "The Puzzle of Jobless Growth in Indian Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(1), pages 5-32, February.
- 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.
- 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.
- Akerlof, George A, 1984. "Gift Exchange and Efficiency-Wage Theory: Four Views," American Economic Review, American Economic Association, vol. 74(2), pages 79-83, May.
When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:1759. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.