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Wage Generosity

  • Schlicht, Ekkehart

Actual wages typically exceed collectively set standard wages. Standard wages are, therefore, not binding, yet they seem to influence actual wages strongly. An explanation for this phenomenon is offered along the lines of the Fair Wage/Effort Hypothesis proposed by G. Akerlof and J. Yellen (1990). It is argued that it is precisely when collectively set wages are relatively unimportant for perceptions of fairness at the firm level, that large wage mark-ups emerge. The general point seems to be that the results of economic modeling may react very sensitively to the customary suppression of "non-economic" factors.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 3165.

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Date of creation: 1992
Date of revision:
Publication status: Published in Journal of Institutional and Theoretical Economics 3 148(1992): pp. 437-451
Handle: RePEc:lmu:muenar:3165
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  1. 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.
  2. Schlicht, Ekkehart, 1978. "Labour Turnover, Wage Structure, and Natural Unemployment," Munich Reprints in Economics 1255, University of Munich, Department of Economics.
  3. 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.
  4. Jonathan S. Leonard, 1987. "Carrots and Sticks: Pay, Supervision and Turnover," NBER Working Papers 2176, National Bureau of Economic Research, Inc.
  5. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
  6. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
  7. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
  8. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  9. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
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