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A Siocio-Psychological Theory of Efficiency Wage Growth

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  • Faria, Joao
  • Jellal, Mohamed

Abstract

This paper provides a socio-psychological theory of efficiency wage growth. The model blends agency theory with the Forced Savings hypothesis by assuming that firms set an increasing wage profile to minimize shirking costs, and that workers’ effort is positively related to the variation of wages. In its simple formulation the model derives some interesting results, such as: i) a positive relationship between the growth rate of efficiency wages and the discount rate; ii) for the case of constant returns of motivation, the growth rate of wages is unrelated with technology and workers’ preferences. The model also allows the analysis of the optimal path of employment. The positive impact of increasing efficiency wage profile on job creation depends only on workers’ returns of motivation and technology.

Suggested Citation

  • Faria, Joao & Jellal, Mohamed, 2009. "A Siocio-Psychological Theory of Efficiency Wage Growth," MPRA Paper 17184, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:17184
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    File URL: https://mpra.ub.uni-muenchen.de/17195/1/MPRA_paper_17195.pdf
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    References listed on IDEAS

    as
    1. Andrew Clark & Yannis Georgellis & Peter Sanfey, "undated". "Job Satisfaction, Wage changes and Quits: Evidence from Germany," Economics and Finance Discussion Papers 98-06, Economics and Finance Section, School of Social Sciences, Brunel University.
    2. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    3. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
    4. Joseph G. Altonji & Nicolas Williams, 1992. "The Effects of Labor Market Experience, Job Seniority, and Job Mobility on Wage Growth," NBER Working Papers 4133, National Bureau of Economic Research, Inc.
    5. Faria, Joao Ricardo, 2000. "Supervision and effort in an intertemporal efficiency wage model: the role of the Solow condition," Economics Letters, Elsevier, vol. 67(1), pages 93-98, April.
    6. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, Oxford University Press, vol. 95(4), pages 703-736.
    7. Clark, Andrew E., 1999. "Are wages habit-forming? evidence from micro data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 179-200, June.
    8. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    9. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    10. Hoon, Hian Teck & Phelps, Edmund S, 1992. "Macroeconomic Shocks in a Dynamized Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 82(4), pages 889-900, September.
    11. Jellal, Mohamed & Zenou, Yves, 1999. "Efficiency wages and the quality of job matching," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 201-217, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Dynamic Efficiency Wage Profile; Job Satisfaction; Jobs Creation;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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