Efficiency wage theory, labormarkets, and adjustment
Conventional labor theory argues that wages are determined by the interaction of labor supply and demand. Policy analysis on wage rigidity has emphasized distortions arising from exogenous intervention. One emphasis in adjustment lending has been deregulation of labor markets. Efficiency wage models of unemployment try to explain persistent real wage rigidities when unemployment persists. Their central assumption is that higher real wages can improve labor productivity. A major implication of these theories is that wages (and hence labor markets) may be unresponsive to typical macroeconomic policies that seek to lower real wages, change resource allocation, and reduce open unemployment. The three central macroeconomic implications of efficiency wage theory are : 1) there is an equilibrium"natural"level of open unemployment, which differs among groups in the labor force and cannot be affected by demand management policies; 2) when reducing the level of production, the typical firm will resort to laying off labor instead of reducing wages, thereby introducing a significant wage inertia and an overshooting of open unemployment; and 3) wages do not respond to clear the labor market and are not responsive to macroeconomic policies and microeconomic deregulation. The authors conclude that applying the theory in developing countries requires suitably defining labor costs and tackling the problem of segmentation of the labor market.
|Date of creation:||31 Jul 1991|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
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.:
- William T. Dickens, 1986. "Wages, Employment and the Threat of Collective Action by Workers," NBER Working Papers 1856, National Bureau of Economic Research, Inc.
- Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
- Lai, Ching-chong, 1990. "Efficiency wages and currency devaluation," Economics Letters, Elsevier, vol. 33(4), pages 353-357, August.
- Campbell, Carl III, 1989. "Sectoral wage rigidity in the Canadian and French economies," European Economic Review, Elsevier, vol. 33(9), pages 1727-1749, December.
- Summers, Lawrence H, 1988.
"Relative Wages, Efficiency Wages, and Keynesian Unemployment,"
American Economic Review,
American Economic Association, vol. 78(2), pages 383-88, May.
- Lawrence H. Summers, 1988. "Relative Wages, Efficiency Wages, and Keynesian Unemployment," NBER Working Papers 2590, National Bureau of Economic Research, Inc.
- Charles Kahn & Dilip Mookherjee, 1988. "A Competitive Efficiency Wage Model with Keynesian Features," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 609-645.
- Jeremy I. Bulow & Lawrence H. Summers, 1985.
"A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment,"
NBER Working Papers
1666, National Bureau of Economic Research, Inc.
- Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
- Summers, Lawrence H. & Dickens, William T. & Katz, Lawrence F. & Lang, Kevin, 1989.
"Employee Crime and the Monitoring Puzzle,"
3645199, Harvard University Department of Economics.
- Raff, Daniel M G & Summers, Lawrence H, 1987.
"Did Henry Ford Pay Efficiency Wages?,"
Journal of Labor Economics,
University of Chicago Press, vol. 5(4), pages S57-86, October.
- Lang, Kevin & Kahn, Shulamit, 1990. "Efficiency Wage Models of Unemployment: A Second View," Economic Inquiry, Western Economic Association International, vol. 28(2), pages 296-306, April.
- Malcomson, James M, 1981. "Unemployment and the Efficiency Wage Hypothesis," Economic Journal, Royal Economic Society, vol. 91(364), pages 848-66, December.
- Calvo, Guillermo, 1979. "Quasi-Walrasian Theories of Unemployment," American Economic Review, American Economic Association, vol. 69(2), pages 102-07, May.
- Macleod, W.B. & Malcomson, J., 1989.
"Wage Premiums And Profit Maximisation In Efficiency Wage Models,"
337, London School of Economics - Centre for Labour Economics.
- MacLeod, W. Bentley & Malcomson, James M., 1993. "Wage premiums and profit maximization in efficiency wage models," European Economic Review, Elsevier, vol. 37(6), pages 1223-1249, August.
- Macleod, W.B. & Malcomson, J.M., 1989. "Wage Premiums And Profit Maximization In Efficiency Wage Models," UFAE and IAE Working Papers 114.89, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- 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.
- George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
- Lawrence F. Katz, 1986.
"Efficiency Wage Theories: A Partial Evaluation,"
in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290
National Bureau of Economic Research, Inc.
- Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
- Bruce C. Greenwald & Joseph E. Stiglitz, 1989.
"Toward a Theory of Rigidities,"
NBER Working Papers
2938, National Bureau of Economic Research, Inc.
- William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
- Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
- Robert E. Hall, 1975. "The Rigidity of Wages and the Persistence of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 301-350.
- Waller, Christopher J., 1989. "Efficiency wages, wage indexation and macroeconomic stabilization," Economics Letters, Elsevier, vol. 30(2), pages 125-128, August.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:731. 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: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.