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Empirical Tests of Efficiency Wage Models

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  • Huang, Tzu-Ling
  • Hallam, Arne
  • Orazem, Peter
  • Paterno, Elizabeth M.

Abstract

Two-digit manufacturing industry-level production functions are used to test efficiency wage propositions. Conclusive tests require functional forms which allow differences in elasticities of substitution between observable human capital, wage premia and other inputs. Results demonstrate that unexplained industry wage premia and higher unemployment rates raise productivity. Wage premia and the human capital wage component cannot be aggregated into a single human capital index. Nevertheless, 88% of the productivity effect associated with industry wages can be tied to observable human capital in the industry, with only 12% associated with the wage premium.

Suggested Citation

  • Huang, Tzu-Ling & Hallam, Arne & Orazem, Peter & Paterno, Elizabeth M., 1998. "Empirical Tests of Efficiency Wage Models," Staff General Research Papers Archive 1325, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:1325
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    Cited by:

    1. Måns Söderbom & Francis Teal & Anthony Wambugu, 2002. "Does firm size really affect earnings?," CSAE Working Paper Series 2002-08, Centre for the Study of African Economies, University of Oxford.
    2. Syed Kanwar Abbas & Asad Zaman, 2005. "Efficiency Wage Hypothesis—The Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 1051-1066.
    3. James Heintz, 2011. "Global Labor Standards: Their Impact and Implementation," Chapters,in: The Handbook of Globalisation, Second Edition, chapter 13 Edward Elgar Publishing.
    4. Joydeep Bhattacharya & Shankha Chakraborty, 2005. "What do information frictions do?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(3), pages 651-675, October.
    5. Pablo Villar Vileikis, 2013. "Formalización: Motor de cambio estructural positivo. El caso colombiano entre 2002 y 2011," DOCUMENTOS CEDE 011467, UNIVERSIDAD DE LOS ANDES-CEDE.
    6. Margarita Katsimi, 2008. "Training, Job Security And Incentive Wages," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(1), pages 67-78, February.
    7. Fallahi, Firouz & Sakineh, Sojoodi & Mehin Aslaninia, Nasim, 2010. "Determinants of Labor Productivity in Iran’s Manufacturing Firms: With Emphasis on Labor Education and Training," MPRA Paper 27447, University Library of Munich, Germany.
    8. K Clark & M Tomlinson, 2001. "The Determinants of Work Effort: Evidence from the Employment in Britain Survey," The School of Economics Discussion Paper Series 0113, Economics, The University of Manchester.
    9. Carter, Thomas J., 2005. "Money and efficiency wages: the neglected effect of employment on efficiency," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(2), pages 199-209, March.
    10. Francis Teal & Måns Söderbom, 2002. "Does firm size really affect earnings?," Economics Series Working Papers WPS/2002-08, University of Oxford, Department of Economics.

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