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What determines workers’ preferences for efficiency over equity wages?


  • Prosper F. Bangwayo-Skeete

    () (Government of Cayman Islands)

  • Afaf H. Rahim

    () (Philipps-University Marburg)

  • Precious Zikhali

    () (VU University Amsterdam)


What makes workers consider it fair for wages to be indexed on job performance or efficiency? In this paper we attempt to answer this question using the 2005 wave of the World Values Survey data for 43 countries to investigate what socio-economic characteristics condition employees’ preference for efficiency over equity wages. Our results suggest that employees’ preference for efficiency wages increases with education and globalization while it decreases with unemployment, income inequality and income tax rates. Given that conventional economic theory demonstrates the importance of labour efficiency, which improves when workers are remunerated according to their efficiency, for economic growth; our results suggest that institutions and specifically public policies that promote education, and globalization, along with policies that reduce unemployment, income inequality and income tax rates could be used to promote efficiency-based wages.

Suggested Citation

  • Prosper F. Bangwayo-Skeete & Afaf H. Rahim & Precious Zikhali, 2009. "What determines workers’ preferences for efficiency over equity wages?," MAGKS Papers on Economics 200933, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:200933

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    References listed on IDEAS

    1. Gottfries, Nils & Westermark, Andreas, 1998. "Nominal wage contracts and the persistent effects of monetary policy," European Economic Review, Elsevier, vol. 42(2), pages 207-223, February.
    2. Marcel Fafchamps & Agnes R. Quisumbing, 1999. "Human Capital, Productivity, and Labor Allocation in Rural Pakistan," Journal of Human Resources, University of Wisconsin Press, vol. 34(2), pages 369-406.
    3. 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.
    4. Malcomson, James M, 1981. "Unemployment and the Efficiency Wage Hypothesis," Economic Journal, Royal Economic Society, vol. 91(364), pages 848-866, December.
    5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
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    More about this item

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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