effort and wages evidence from the payroll tax this is a pre copy editing author produced pdf file of an article accepted for publication canadian journal of economics following peer review this accepted manuscript is being archived under the conditions specified in the bu open access policy

the determinants of dismissals quits and layoffs a multinomial logit approach in efficiency wage models workers productivity depends positively on the wage giving firms an incentive to pay wages above their market clearing level two models in this literature are the shirking model of shapiro and stiglitz 12 and bowles 1 and the turnover cost model of stiglitz 13 schlicht 11 and salop 10 in the shirking model a higher wage and a higher unemployment rate raise the cost of losing one s job thereby discouraging workers from shirking and increasing their effort in the turnover cost model a higher wage reduces quits and thus lowers the firm s cost of hiring and training new workers given the role of separations in efficiency wage models it is important to understand the determinants of separations this study uses data on individual workers to examine the determinants of dismissals quits and layoffs within the first six months of a hire paying particular attention to dismissals because of the prominence of the shirking model in the efficiency wage literature the purposes of this study are to test whether higher unemployment lowers dismissals as predicted by the shirking model and to examine the effect of firm variables related to the costs of monitoring and shirking on the probability of a dismissal in addition this study provides insight into the effects of firm characteristics and worker characteristics on dismissals quits and layoffs

an empirical analysis of wage dispersion and efficiency wages the main purpose of this study is to examine inter industry wage differentials in sweden after controlling for individual and job characteristics the results indicate that these differentials are substantial the ranking of the differentials was stable over time while the dispersion of wage premiums fell by 50 per cent during the period 1968 81 a period of strong efforts to reduce wage dispersion in sweden the relation between industry wage premiums and a number of industry characteristics is also examined along with new evidence which is in line with the shirking model hypothesis on the relation between wages and worker control

temporary foreign workers and firms theory and canadian evidence abstract temporary foreign worker tfw programs have grown considerably in size when uncapped we develop a simple efficiency wage model to explain this phenomenon and examine the empirical evidence for it we also use the model to evaluate the implications of tfw programs for domestic workers in our framework firms that have been unable to find domestic workers may hire tfws at the wage previously advertised to domestic workers due to the lower outside option for tfws than domestic workers tfws will exert more effort for the same wage firms would thus prefer to hire otherwise identical tfws rather than domestic workers our model identifies an unintended consequence of a tfw program since the repercussions of a failed domestic job search are less severe if a tfw may be hired instead firms have an incentive to lower their wage offers made to domestic workers using canadian data we find that relative to domestic workers tfws work longer hours have lower rates of absenteeism and are less likely to be laid off consistent with higher effort in our model moreover for tfws from home countries with a relatively high outside option effort is lower than for tfws from other countries resume travailleurs etrangers temporaires et entreprises theorie et exemple canadien en l absence de plafonnement les programmes de travailleurs etrangers temporaires ptet se sont considerablement developpes afin d expliquer ce phenomene et d en examiner les preuves empiriques nous avons developpe un modele simple de salaire d efficience nous avons egalement utilise ce modele pour evaluer l incidence des ptet sur les travailleurs domestiques dans notre cadre d etude les entreprises peinant a trouver une main d uvre locale peuvent embaucher des travailleurs etrangers temporaires au salaire prealablement propose aux travailleurs domestiques compte tenu d options exterieures plus faibles les travailleurs etrangers temporaires deploieront davantage d efforts pour le meme salaire les entreprises prefereront donc embaucher des travailleurs etrangers par ailleurs identiques plutot que des travailleurs domestiques notre modele identifie une consequence inattendue aux ptet etant donne que les consequences d une recherche d employes domestiques infructueuse sont attenuees par l embauche de travailleurs etrangers temporaires les entreprises sont incitees a diminuer les offres salariales proposees aux travailleurs locaux en exploitant les donnees propres au canada nous avons decouvert que les travailleurs etrangers temporaires travaillaient plus d heures avaient des taux d absenteisme inferieurs et etaient moins susceptibles de se faire congedier que les travailleurs domestiques conformement au concept d effort accru developpe dans notre modele en outre pour les travailleurs etrangers temporaires originaires de pays a options exterieures relativement elevees l effort sera moindre que pour ceux provenant d autres pays

union power cost of job loss and workers effort the authors hypothesize that the effectiveness of external threats in raising workers effort is mediated by among other labor market conditions the presence or absence of a powerful union in particular they argue that because powerful unions reduce the potency of the external threat of job loss by making it more difficult for employers to dismiss workers the pace of work is less responsive to such a threat in strongly unionized plants than in weakly unionized plants the results of an analysis of data from the 1990 workplace industrial relations survey in britain support this hypothesis the analysis also yields evidence that effort is increased where workers are rewarded individually according to results and where there are various communication channels between workers and management

the role of energy in productivity growth the objective of this paper is to analyze the role of energy in the growth of productivity the special significance of energy in economic growth was first established in the classic study energy and the american economy 1850 1975 by sam schurr and his associates 1960 at resources for the future for the period from 1920 to 1955 schurr noted that energy intensity of production had fallen while both labor and total factor productivity were rising the simultaneous decline in energy intensity and labor intensity of production ruled out the possibility of explaining the growth of productivity solely on the basis of substitution of less expensive energy for more expensive labor since the quantity of both energy and labor inputs required for a given level of output had been reduced technical change is also a critical explanatory factor an alternative explanation for growth of output with declining energy and labor intensity required an examination of the character of technical change this examination was motivated by the fact that from 1920 to 1955 the utilization of electricity had expanded by a factor of more than ten while consumption of all other forms of energy only doubled the two key features of technical change during this period were that the thermal efficiency of conversion of fuels into electricity increased by a factor of three and that the unusual characteristics of electricity had made it possible to perform tasks in altogether different ways than if the fuels had to be used directly schurr 1983 p 3 schurr 1982 has recently extended the analysis of energy and the american economy through 1981 for the period through 1969 his conclusions are as follows although the inverse relationship between total factor productivity and energy intensity virtually disappeared during the 1953 1969 period it is still noteworthy that high rates of improvement in total factor productivity were essentially not associated with increases in energy intensity 1982 p 6 schurr 1982 has analyzed the experience of the u s economy in the aftermath of the oil embargo of 1973 he points out that energy intensity of production has fallen steadily since 1973 and that the rate of decline accelerated sharply after the second oil price shock in 1979 following the iranian revolution he goes on to point out that

unemployment and effort at work we measure the sensitivity of work effort to local labour market conditions using self reported non work at the workplace in the american time use survey atus 2003 12 non work at work is quantitatively significant and varies positively with local unemployment but in opposite directions at the extensive and intensive margins the fraction of workers reporting positive values declines with unemployment while time spent in non work conditional on any such time rises with unemployment the results speak to issues of labour hoarding efficiency wages and the cyclicality of labour productivity we also demonstrate a relationship between the incidence of non work and unemployment benefits in state data linked to the atus there are also pronounced occupational differences in the incidence and intensity of non work

sources of intra industry wage dispersion how much do employers matter observed human capital explains less than half of wage variation in bls industry wage surveys establishment based wage differentials controlling for occupation account for 20 70 percent of intra industry wage variation this corresponds to a standard deviation in wages of 14 percent of the mean almost as large as interindustry wage variation investigation suggests that establishment wage differentials are not random variations or returns to usual measures of human capital

is the efficiency wage efficient the social norm and organizational corruption the effectiveness of efficiency wage incentives is often jeopardized by perverse organizational corruption we model organizational corruption as a phenomenon of social interaction and relate the substantial psychological role characterizing the social norm to the corruption problem we find that if the status quo bribery rate within the firm is high social norms can no longer serve as a sufficient sanction against a corrupt supervisor pandemic organizational corruption tends to generate a critical mass effect the snowball effect which intensifies the corruption effect this intensified effect due to the snowballing character of social norms may more than offset the usual incentive effect of wages resulting in more widespread shirking in the firm jel classification d82 j41

a multisector model of efficiency wages the pattern of effort and wages is derived in a multisector efficiency wage model firms choose effort endogenously easily monitored or low turnover jobs have high effort and may have low wages in equilibrium empirical wage differentials from a measure of supervision are smaller than observed industry differentials that have been attributed to efficiency wage models and are closer to those predicted by the model workers can search for and avail of on the job offers if sectors grow at different rates or the unemployment rate changes the pattern of wage differentials is unaffected

ambiguous incentives and the persistence of effort experimental evidence abstract when the assignment of incentives is uncertain we study how the regularity and frequency of rewards and risk attitudes influence participation and effort we contrast three incentive schemes in a real effort experiment in which individuals decide when to quit a continuous incentive scheme and two intermittent ones fixed and random in all treatments we introduce a regime shift by withdrawing monetary rewards after the same unknown number of periods in such an ambiguous environment we show that less able and more risk averse players are less persistent in effort intermittent incentives lead to a greater persistence of effort while continuous incentives entail exit as soon as payment stops randomness increases both earlier and later exiting this selection effect in terms of ability and risk attitudes combined with the impact of intermittent rewards on persistence lead to an increase in mean performance after the regime shift when incentives are intermittent

offshoring and unemployment the role of search frictions labor mobility abstract in a two sector general equilibrium model with labor market search frictions we find that the wage increases and sectoral unemployment decreases upon offshoring in the presence of perfect intersectoral labor mobility if as a result labor moves to the sector with the lower or equal vacancy costs there is an unambiguous decrease in economywide unemployment with imperfect intersectoral labor mobility unemployment in the offshoring sector can rise with an unambiguous unemployment reduction in the non offshoring sector imperfect labor mobility can result in a mixed equilibrium in which only some firms offshore with unemployment in the offshoring sector rising

equilibrium unemployment with outsourcing and wage solidarity under labour market imperfections abstract we evaluate the effects of outsourcing and wage solidarity on wage formation and equilibrium unemployment in a heterogeneous labour market where wages are determined by a monopoly labour union we find that outsourcing promotes the wage dispersion between the high and low skilled workers when the labour union adopts a solidaristic wage policy it will dampen this tendency further higher outsourcing will increase equilibrium unemployment among the high skilled workers whereas it will reduce it among the low skilled workers overall outsourcing will reduce economy wide equilibrium unemployment under the reasonable condition that the proportion of high skilled workers is sufficiently low

is there a trade off between supervision and wages an empirical test of efficiency wage theory abstract the logic of efficiency wage theory suggests a trade off between wages and supervision this paper reports evidence that high levels of supervision are indeed associated with lower wage levels the empirical investigation centers on the effect that safety supervision by host employers has on the wages of contract maintenance workers in the petrochemical industry this narrow focus is important special institutional features of the contract employment relationship in petrochemicals make it possible to ameliorate econometric problems that may have influenced earlier studies

ambiguity aversion and comparative ignorance decisions under uncertainty depend not only on the degree of uncertainty but also on its source as illustrated by ellsberg s observation of ambiguity aversion in this article we propose the comparative ignorance hypothesis according to which ambiguity aversion is produced by a comparison with less ambiguous events or with more knowledgeable individuals this hypothesis is supported in a series of studies showing that ambiguity aversion present in a comparative context in which a person evaluates both clear and vague prospects seems to disappear in a noncomparative context in which a person evaluates only one of these prospects in isolation

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

a new theory of corporatism and wage setting abstract the standard view on corporatist institutions for wage setting in many european economies is based of the insider outsider model corporatism is associated with lack of wage flexibility this paper discusses a new approach starting from the importance of nominal contracts the rationale for these contracts is to avoid future bargaining adjusting these contracts ex post to aggregate shocks would raise their efficiency however avoiding the bargaining required for this adjustment was the main reason for negotiating these contracts in the first place this is the fundamental contradiction under corporatism outside institutions can play this role these institutions provide therefore a type of flexibility not available in decentralized economies empirical evidence supports the basic ideas of this model

duopoly in exhaustible resource exploration and extraction strategic considerations of exploration and extraction are investigated in a two player two period two stage perfect equilibrium framework relative to two plant monopoly the duopolists explore more and extract more period by period a mixed game in which there is co operation upstream in exploration and cournot competition down stream in quantitites extracted is investigated we also note that increasing returns to scale in exploration can introduce an unstable solution with a corner solution the presumed stable equilibrium

trade and search generated unemployment we argue that trade economists should begin to seriously consider environments in which unemployment is carefully modeled we introduce such a model derive several results and compare them to results derived in full employment models we argue that some traditional results are probably too narrow the determinants of comparative advantage and that some results do not generalize to models with unemployment the link between trade and income distribution for employed factors we also show that in some important cases results do generalize there is an extended stolper samuelson theorem that links trade to the distribution of income for searching factors and that our model allows us to address issues that traditional models cannot handle the impact of trade on unemployment and the welfare of the unemployed 1999 elsevier science b v all rights reserved

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

near rationality in wage setting this study argues that it is interesting to examine near rational behaviour in the context of an efficiency wage model where there are positive if decreasing returns to increasing the wage beyond the efficient level previous research has found it difficult to distinguish between efficiency wage and bargaining models which have similar empirical predictions but unions are a priori more likely to develop in environments in which the technology favours efficiency wage payments this makes it interesting to investigate what it costs the firm to deviate from the efficiency wage if it does not cost a lot firms may give in to union demands this study derives expressions for the wage deviation and for the associated profit loss for illustrative purposes these are calibrated for uk us and indian manufacturing taking a plausible parameterization of the effort wage function and using available estimates of the wage and employment elasticities of output while there is evidence of positive effort returns t

can wage increases pay for themselves tests with a production function efficiency wage theories predict that companies that pay high wages will have higher productivity from high work effort low turnover and other efficiency enhancing effects this paper uses the pims line of business data set to test whether high wage businesses are more productive relative wages were measured by managers assessments of their relative compensation holding worker quality constant a positive relation was found between changes in relative wages and changes in total factor productivity the elasticity of output with respect to wages was of the magnitude predicted by efficiency wage theories also consistent with efficiency wage theories the relationship between changes in wages and changes in productivity was weaker at businesses with high unionization results from two additional data sets imply that high wages are not merely measuring high human capital copyright 1992 by royal economic society

centralisation employment and wage dispersion this paper is about bargaining institutions and their influence on wage dispersion and employment using novel statistical measures it compares labor market performance in seventeen oecd countries since 1973 it concludes that countries with highly centralized wage bargaining have generally achieved the best performance combining high employment with low wage dispersion thereby avoiding certain major inequalities prevalent elsewhere the paper also presents a formal model of bargaining based on the work of l calmfors and j driffill 1988 simulations are used to illustrate how this model generates the kind of outcomes described in the empirical part of the paper copyright 1992 by royal economic society

wage dispersion and productive efficiency evidence for sweden the swedish record of enormous compression of relative wages under centralized solidarity bargaining followed by substantial decompression of wages after central bargaining broke down supplies observations well suited to empirical evaluation of arguments about the response of productive efficiency to shifts in wage distribution we obtain no results supporting fairness morale and cohesiveness theories implying that wage leveling within workplaces and industries may enhance productivity reduction of interindustry wage differentials evidently did however contribute positively to aggregate output and productivity growth most likely for the structural reasons first emphasized by swedish trade union economists almost a half century ago

loss aversion and labor supply in many occupations workers labor supply choices are constrained by institutional rules regulating labor time and effort provision this renders explicit tests of the neoclassical theory of labor supply difficult here we present evidence from studies examining labor supply responses in neoclassical environments in which workers are free to choose when and how much to work despite the favorable environment the results cast doubt on the neoclassical model they are however consistent with a model of reference dependent preferences exhibiting loss aversion and diminishing sensitivity jel j22 b49

learning about and exploiting exhaustible resource deposits of uncertain size the kemp loury model of a single uncertain deposit is cast in an n state framework and optimal programs characterized robson s problem of arranging the optimal sequence of uncertain deposits is recast and a market failure involving the jointness of learning about deposit size and gaining revenue from extracted ore is isolated the value of learning by preliminary extraction is characterized and extensions to the problem of arranging optimal sequences are noted this abstract was borrowed from another version of this item

speeding terrorism and teaching to the test educators worry that high stakes testing will induce teachers and their students to focus only on the test and ignore other untested aspects of knowledge some counter that although this may be true knowing something is better than knowing nothing and many students would benefit even by learning the material that is to be tested using the metaphor of deterring drivers from speeding it is shown that the optimal rules for high stakes testing depend on the costs of learning and of monitoring incentives need to be concentrated for those whose costs of action are high

the political economy of international trade essays in honour of robert e baldwin part 1 theory of trade policy with imperfect information avinash dixit strategic trade policy and the new international economics a critical analysis gottfried haverlay the role of services in production and international trade a theoretical framework ronald w jones and henry kierzkowski the coefficient of trade utilization back to the baldwin envelope james e anderson and j peter neary part 2 trade policy issues reflections on uniform taxation arnold c harberger intellectual property rights and north south trade judith c chin and gene m grossman optimal tariff retaliation rules david f burgess international trade in capital and capital goods rachel mcculloch and j david richardson part 3 political economy of trade policy asymmetries in policy between exportables and import competing goods anne d krueger trade policy development and the new political economy gerald m meier does 1992 come before or after 1990 on regional versus multilateral integration andre sapir part 4 empirical studies of trade issues the structure and effects of tariff and non tariff barriers in 1983 edward leamer a computational analysis of alternative safe guards of policy scenarios in international trade alan v deardorff and robert m stern direct foreign investments and trade in east and southeast asia seiji naya

contracting with repeated moral hazard and private evaluations a repeated moral hazard setting in which the principal privately observes the agent s output is studied the optimal contract for a finite horizon is characterized and shown to require burning of resources these are only burnt after the worst possible realization sequence and the amount is independent of both the length of the horizon and the discount factor for the infinite horizon it is shown that there is no loss from restricting the analysis to contracts in which the agent receives a constant efficiency wage and no feedback until he is fired furthermore optimal contracts cannot be replicated by short term contracts a family of fixed interval review contracts is characterized longer review intervals are preferable but harder to implement comparative statics on the review length are carried out finally these contracts are shown approximate first best if players are very patient jel d82 d86

preference for output price uncertainty by the non renewable resource extracting firm abstract we establish a general preference for price uncertainty by the price taking risk neutral non renewable resource extracting firm with orthodox convex extraction costs we prove that the relevant value function for profits over an interval is convex in output price

evaluating carbon dioxide emissions in undertaking offshored production tasks the case of china emerging economies like china india and mexico are becoming the world s manufacturing leaders through the engagement in offshoring production activities in achieving this status however they have met with difficult environmental issues this paper features an analysis of industry level panel data to examine the link between different offshoring tasks in china and carbon dioxide emissions through this analysis the environmental effects of offshored production are addressed specifically an input output model is presented thereby quantifying offshored production tasks in china the results show that iron and steel nonferrous metals is and chemicals ch generate the most carbon dioxide during production of processed goods additionally electrical machinery em and general machinery gm generate a higher amount of carbon dioxide during production of parts and components the results also show that those industries characterized by higher energy consumption have higher carbon dioxide co2 emissions induced by offshoring given these results it seems that any solutions geared towards reducing the energy consumption of entire manufacturing industries would be useful furthermore the results of the analyses presented here indicate that china would be responsible for working with developed countries to reduce carbon dioxide emissions through cooperative environmental regulation a globalization perspective is adopted to offer unique insight into the environmental issues faced by china the results of this paper would provide quantified actionable information for formulating practical industrial policies geared towards reducing carbon dioxide leakage

reference dependent risk attitudes we use koszegi and rabin s 2006 model of reference dependent utility and an extension of it that applies to decisions with delayed consequences to study preferences over monetary risk because our theory equates the reference point with recent probabilistic beliefs about outcomes it predicts specific ways in which the environment influences attitudes toward modest scale risk it replicates classical prospect theory including the prediction of distaste for insuring losses when exposure to risk is a surprise but implies first order risk aversion when a risk and the possibility of insuring it are anticipated a prior expectation to take on risk decreases aversion to both the anticipated and additional risk for large scale risk the model allows for standard consumption utility to dominate reference dependent gain loss utility generating nearly identical risk aversion across situations

deferred compensation vs efficiency wages an experimental test of effort provision and self selection abstract we compare the ability of two common compensation structures efficiency wages ew and deferred compensation dc at inducing effort from workers we test predictions on effort provision and elicit preferences between the two wage structures the theoretical predictions on effort are generally well supported although we find over provision of effort with ew in consequence although the theoretical prediction that dc is more cost effective is supported the difference is small we also find a marked preference for ew that cannot be explained by risk aversion the two effects combine to largely dissipate any advantage that dc may have in inducing effort

international outsourcing and the productivity of low skilled labor in the eu this article presents first insights into the role of international outsourcing on the productivity of low skilled workers in eu manufacturing whereas in the short run international outsourcing exhibits a negative marginal effect on real value added per low skilled worker the long run parameter estimates reveal a positive impact this may be explained by imperfections in european labor and goods markets which prohibit an immediate adjustment in the factor employment and the output structure the change in the outsourcing intensity since 1993 alone acounts for a long run increase of about 6 0 in the real value added per low skilled worker jel c33 f14 f15

efficiency wages and employment rents the employer size wage effect in the job market for lawyers the efficiency wage hypothesis offers an explanation for employment rents according to this hypothesis firms pay wages above the opportunity cost of labor to elicit productivity or quality enhancing behaviors from employees firms pursue this strategy when alternative incentive schemes are unavailable or too costly thus firms will not pay premium wages when employees post sufficiently large performance bonds this article examines employment rents in a setting where employees post sizable performance bonds large law firms contrary to the efficiency wage hypothesis we find that associates in these large firms post substantial performance bonds while also receiving substantial ex ante rents

the role of fairness in wage determination neoclassical wage theory is based on the premise that a worker s utility is based on his own wage and his own hours of work without reference to the wages and hours of others this article reviews anecdotal evidence that the wages of others are a powerful force in determining worker satisfaction such that utility goes down when the wages of others go up the resulting comparisons are a powerful force in determining wage structure but do not exclude ultimate effect of neoclassical wage determinants

shirking and choking under incentive based pressure a behavioral economic theory of performance production abstract significant empirical evidence exists within psychology and economics that greater incentives under pressure can lead to lower performance outcomes however standard economic theory does not account for this possibility efficiency wage models for example conclude a positive relationship between wage incentives and productivity while efficiency wage models are shown to describe productivity behavior in numerous settings said models do not describe labor markets featuring counterproductive performance pressure we put forth a theoretical model of performance production in which performance incentives induce productive effects and counterproductive effects the model treats explicit monitoring and distraction as distinct counterproductive processes within a cohesive theory of performance production in settings featuring performance pressure we find that higher levels of performance contingent compensation may decrease not only labor output i e likelihood of task success but also labor input i e effort if counterproductive processes decrease the marginal effectiveness of effort sufficiently the latter finding challenges a common view that performance decrements under pressure occur despite greater effort levels

work environment and individual background explaining regional shirking differentials in a large italian firm the prevalence of shirking within a large italian bank appears to be characterized by significant regional differentials in particular absenteeism and misconduct episodes are substantially more prevalent in the south we consider a number of potential explanations for this fact different individual backgrounds group interaction effects sorting of workers across regions differences in local attributes different hiring policies and discrimination against southern workers our analysis suggests that individual backgrounds group interaction effects and sorting effects contribute to explaining the north south shirking differential none of the other explanations appears to be of first order importance i introduction whether individual behavior is determined by group interactions or by individual background is undoubtedly a fundamental question for the social sciences this question presented itself forcefully when we stumbled onto the following piece of evidence there appear to be significant regional differentials in the prevalence of shirking among the employees of a large italian bank in particular absenteeism and misconduct episodes are considerably more frequent in the southern branches of the bank in this paper we examine several potential explanations for this fact first individual preferences for shirking versus working may differ according to one s region of hirth we will refer to this hj othesis as one of different individual hackgrounds the second possibility is one of locational sorting low shirking types may tend to migrate to the north high shirking types may tend to migrate to the south or hoth third the northern and southern

did henry ford pay efficiency wages we examine henry ford s introduction of the five dollar day in 1914 in an effort to evaluate the relevance of efficiency wage theories of wage and employment determination we conclude that the ford experience strongly supports the relevance of these theories ford s decision to increase wages dramatically is most plausibly the consequence of labor problems of the kind efficiency wage theorists stress the structure of the five dollar day program is consistent with the predictions of efficiency wage theories there is vivid evidence that the introduction of the five dollar day resulted in substantial queues for ford jobs significant increases in ford productivity and profits accompanied the new regime

trade liberalization and unemployment theory and evidence from india abstract a widely held view among the public is that trade liberalization increases unemployment using state and industry level unemployment and trade protection data from india we find no evidence of any unemployment increasing effect of trade reforms in fact our state level analysis reveals that urban unemployment declines with trade liberalization in states with flexible labor markets and larger employment shares in net exporter industries moreover our industry level analysis indicates that workers in industries experiencing greater reductions in trade protection were less likely to become unemployed especially in net export industries our results can be explained within a theoretical framework incorporating trade and search generated unemployment and some institutional features of the indian economy

consequences of offshoring to developing nations labor market outcomes welfare and corrective interventions our parsimonious two country developed country and developing country model of offshoring provides nuanced results these include cases where wages monotonically improve as well as where wages exhibit an inverted u relationship with offshoring cost reductions we identify conditions under which these relationships hold since global welfare always rises with improvements in offshoring technology we find that there is a role for a minimum wage alternatively wage tax in the developing country we derive such a policy s optimal level there is also the possibility of a developed country optimal offshoring tax for extracting terms of trade benefits we finally analyze the two country nash equilibrium in policies jel f11 f13 f16 f66 o19 o24

are wages habit forming evidence from micro data although utility functions play a central role in economics the axiom that utility depends only on the absolute levels of its arguments is rarely tested this paper uses panel data on 2000 british employees who remain with the same employer and who are not promoted from one wave to the next it is shown that one important measure of well being overall job satisfaction is strongly positively correlated with the change in the worker s pay between waves but is unrelated to the current level of pay empirical tests suggest that a reference dependent satisfaction function where individual well being depends on current pay relative to past pay is more consistent with these regression results than are productivity or agency explanations of increasing wage profiles some evidence is presented of greater job satisfaction effects of pay rises for lower paid less well educated and younger workers these results provide some micro evidence consistent with the theory widespread in social science of habituation individuals may become used to any given level of consumption or income as such they tie in with the finding that a country s well being as measured by the average happiness of its citizens is only weakly correlated with its per capita gnp

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

contractual incompleteness unemployment and labor market segmentation this article provides evidence that involuntary unemployment and the segmentation of labour markets into firms offering good and bad jobs may both arise as a consequence of contractual incompleteness we provide a simple model that illustrates how unemployment and market segmentation may jointly emerge as part of a market equilibrium in environments where work effort is not third party verifiable using experimental labour markets that differ only in the verifiability of effort we demonstrate empirically that contractual incompleteness can cause unemployment and segmentation our data are also consistent with the key channels through which the model explains the emergence of both phenomena copyright 2014 oxford university press

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

are wages too low empirical implications of efficiency wage models firms may pay efficiency wages to enhance productivity the conventional presumption is that efficiency wages are inefficiently high because they lead to unemployment that is also inefficiently high government policies that lower wages raise output using a simple and general efficiency wage model this paper finds a necessary and sufficient condition for the opposite conclusion if the condition holds wages are inefficiently low leading to productivity that is also inefficiently low it is the high wage policies that raise output even if they also lower employment published empirical results support the condition no evidence is found for the conventional presumption

carrots and sticks pay supervision and turnover the efficiency wage model ewm has been advanced as an explanation for large and persistent wage differentials the shirking version of the ewm assumes a trade off between self supervision and external supervision the turnover version assumes turnover is costly to the firm variation across firms in the cost of monitoring shirking or turnover then is hypothesized to account for wage variations across firms for homogeneous workers using a new sample of firm data this paper presents empirical evidence of the trade off of wage premiums for supervisory intensity and turnover little evidence is found to support either version of the ewm

monitoring motivation and management the determinants of opportunistic behavior in a field experiment economic models of incentives in employment relationships are based on a specific theory of motivation employees are rational cheaters who anticipate the consequences of their actions and shirk when the marginal benefits exceed costs we investigate the rational cheater model by observing how experimentally induced variation in monitoring of telephone call center employees influences opportunism a significant fraction of employees behave as the rational cheater model predicts a substantial proportion of employees however do not respond to manipulations in the monitoring rate this heterogeneity is related to variation in employee assessments of their general treatment by the employer jel d2 j2 l2 l8 m12

employment job turnover and trade in producer services uk firm level evidence abstract we provide the first firm level evidence of the impact of the trade in producer services offshoring on the labour market using a new data set from the uk that measures trade in services at the firm level we find no evidence that importing intermediate services is associated with job losses or greater worker turnover using regression to control for observable differences between firms that import service inputs and those that do not we show that firms that start importing intermediate services experience faster employment growth than equivalent firms that do not this seems likely to be the result of positive demand shocks which cause a simultaneous increase in employment output and use of imported service inputs

new york city cab drivers labor supply revisited reference dependent preferences with rational expectations targets for hours and income this paper reconsiders whether cabdrivers labor supply decisions reflect reference dependent preferences following botond koszegi and matthew rabin 2006 we construct a model with targets for hours as well as income both determined by rational expectations estimating using henry s farber s 2005 2008 data we show that the reference dependent model can reconcile his 2005 finding that drivers stopping probabilities are significantly related to hours but not income with the negative wage elasticity of hours found by colin camerer et al 1997 and farber 2005 2008 the model yields sensible estimates that avoid farber s 2008 criticism that drivers income targets are too unstable to allow a useful reference dependent model of labor supply

large risks limited liability and dynamic moral hazard we study a continuous time principal agent model in which a risk neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses firm size can be decreased at no cost or increased subject to adjustment costs in the optimal contract investment takes place only if a long enough period of time elapses with no losses occurring then if good performance continues the agent is paid as soon as a loss occurs payments to the agent are suspended and so is investment if further losses occur accumulated bad performance leads to downsizing we derive explicit formulae for the dynamics of firm size and its asymptotic growth rate and we provide conditions under which firm size eventually goes to zero or grows without bounds

why some jobs command wage premiums a test of career tournament and internal labor market hypotheses the wage premiums associated with jobs in a large organization were identified through comparing their pay to the prevailing wages in the relevant outside labor markets we then examined the characteristics of those jobs to investigate why some commanded larger premiums than others jobs at the tops of promotion ladders jobs requiring many organization specific skills and to a lesser extent jobs with access to influence commanded greater wage premiums wages above market rates appear important in supporting the internal labor market mechanisms associated with these jobs findings may clarify the factors compensation managers should consider when positioning wage rates examination of these issues is a potentially important bridge between the study of internal labor markets in organizational research and the study of wages in economics

temporary workers and productivity the case of spain the primary focus of this paper is on efficiency wages and their testable implications in particular the nature of the relationship between efficiency wages productivity and the make up of the labour force is analysed modelled and subjected to an empirical test this theory is consistent with the views of many managers and personal administrators who tend to ascribe primary importance in wage setting to indirect control of the firm s workforce here we test a labour augmenting production function where effort depends not only on wages but also on the proportion of temporary workers

wages and the intensity of labor effort efficiency wages versus compensating payments the distinction between efficiency wages and compensating payments is at best rather vague in both the theoretical and empirical literatures positing a relationship between wages and the intensity of labor effort while efficiency wages and compensating payments are both related to work intensity the mechanisms that generate these relationships are in each case quite distinct compensating payments exist in competitive labor markets to equalize overall compensation across identical workers with dissimilar working conditions workers who expend more labor effort must be paid more or they will seek employment elsewhere efficiency wages are employment rents paid by firms in order to ensure adequate labor effort these rents vary with the costs firms face in monitoring labor effort they cannot be competed away because without employment rents profit maximizing levels of work intensity would not be forthcoming in this paper we distinguish between the efficiency wage and compensating payments components in wage differences across workers and firms in the first section of the paper we use a theoretical model of optimal labor effort choice by workers and firms to make these two com

does the political power of nonfinancial stakeholders affect firm values evidence from labor unions whereas corporate political connections are known to enhance equity values we demonstrate that union political activity can have the opposite effect we examine the consequences of a recent australian state law that restricts union political activity but does not change collective bargaining rights in the wake of this law the equity values of affected unionized firms significantly increase and consistent with this market reaction these firms are able to bargain for more favorable labor contracts than their unionized peers in other states the evidence strongly suggests that unions use political activism to extract rents from shareholders and benefit their members

unemployment and welfare consequences of international outsourcing under monopolistic competition this paper challenges the conventional academic view that international outsourcing is just another form of gainful trade contrary to that view we show that labour service outsourcing can reduce the high wage country s welfare even when product market trade is beneficial within a model that combines involuntary unemployment and monopolistic competition outsourcing s impact on welfare is worsened by a definite loss of jobs and a possible contraction in the range of varieties produced worldwide while owners of capital benefit from outsourcing under certain conditions labour s welfare always falls resume consequences de la sous traitance internationale sur le chomage et le bien etre en regime de concurrence monopolistique ce texte remet en question le point de vue conventionnel des universitaires pour qui la sous traitance internationale n est qu une autre forme de commerce porteur de gains en opposition a ce point de vue on montre que la sous traitance de services de travail peut reduire le niveau de bien etre du pays a hauts salaires meme quand le commerce dans le marche des produits est benefique dans un modele qui combine chomage involontaire et concurrence monopolistique l impact de la sous traitance sur bien etre est rempire par une perte d emplois et une contraction possible de la variete de produits au plan mondial alors que les proprietaires de capital beneficient de la sous traitance dans certaines conditions le bien etre du travail decline toujours

she works hard for the money household responsibilities and the allocation of work effort recent developments in human capital theory suggest that men and women differ in how they allocate effort to work activities this paper uses the 1973 and 1977 quality of employment surveys to test the assumtion that women allocate less effort to work because of their family and household responsibilities regression and ordered probit analyses show that on average women allocate more effort to work than do men further the sex difference is substantial when men and women with comparable family situations and market human capital are compared the paper discusses how experiments on sex differences in standards of personal entitlement and research on sex segregated workplaces provide an alternative to the economists perspective finally the paper argues for an integration of human capital models research on social equity and structural theories of work organization in order to provide a more complete explanation of men s and women s orientations toward work and family

teacher pay and school productivity exploiting wage regulation abstract the impact of teacher pay on school productivity is a central concern for governments worldwide yet evidence is mixed in this paper we exploit a feature of teacher labour markets to determine the impact of teacher wages teacher wages are commonly set in a manner that results in flat wages across heterogeneous labour markets this creates an exogenous gap between the outside labour market and inside regulated wage for teachers we use the centralised wage regulation of teachers in england to examine the effect of pay on school performance we use data on over 3000 schools containing around 200 000 teachers who educate around half a million children per year we find that teachers respond to pay a ten percent shock to the wage gap between local labour market and teacher wages results in an average loss of around 2 in average school performance in the key exams taken at the end of compulsory schooling in england

gone fishing reported sickness absenteeism and the weather i introduction the principal agent problem of contracting employee work effort that is imperfectly monitored arises in a number of areas of economic theory including models of remuneration by seniority lazear 1979 involuntary unemployment e g shapiro and stiglitz 1984 performance based pay macleod and malcomson 1998 and labor hoarding depken redmount and snow 2001 given the importance of this mechanism in the theoretical work the empirical research on the agency problem is remarkably scant in part this reflects the limited availability of personnel data as baker and holmstrom argue in their review article internal labour markets too many theories too few facts 1995 but more fundamentally it reflects the inherent difficulty of empirically capturing the employee effort levels that underlie the models using direct measures of employee or firm level productivity is unquestionably the preferred approach but these measures are notoriously problematic and the studies that use them tend to be case studies introducing external validity issues it is also unlikely to isolate the type of malfeasant shirking behavior that concerns variants of the models where the employee effort decision entails disciplinary risk to inform employee incentives to engage in malfeasant behavior economists have relied on two measures employee disciplinary rates e g cappelli and chauvin 1991 ichino and maggi 2000 and absenteeism rates e g arai and thoursie 2005 bradley green and leeves 2007 ichino and riphahn 2005 the difficulty is that disciplinary rates capture only shirking activity that is identified by employers not that which goes undetected while reported absenteeism particularly sickness absenteeism rates may be entirely legitimate one can therefore never be sure whether differences in these rates across workers facing different shirking costs reflect actual shirking activity as opposed to differences in employers willingness or ability to detect and punish shirkers or differences in employee health that may be correlated with these costs in this paper we identify a different type of shirking activity that potentially addresses both of these shortcomings employees misreporting health in order to exploit weather conditions favorable to high utility outdoor recreation 1 we begin by considering a shirking model of sickness absenteeism in which employees marginal utility of outdoor leisure is increasing in the interaction of two state dependent parameters health and outdoor weather quality the intuition being that ideal weather conditions for engaging in outdoor recreation are valued more when one is physically and perhaps also mentally healthy this assumption leads to two main propositions first increases in sickness absenteeism associated with marginal improvements in weather quality reflect the decisions of the inframarginal workers those workers who in the absence of the weather improvement would be present at work who are the healthiest implying an increase in absenteeism that is unambiguously illegitimate second comparing across workers marginal weather improvements should have the largest impact on sickness absenteeism where shirking costs are highest the reason is that where existing incentives to misreport health are the weakest such as where sick pay is not offered or job protection is weak existing sickness absenteeism levels will be lowest and the inframarginal workers will be the healthiest thereby benefitting most from the weather improvement we examine the empirical relevance of these propositions using a two step approach first we construct an index of weather preferences by linking temperature relative humidity precipitation wind speed and cloud cover data to time use data identifying the weekend and weekday evening outdoor recreational activities of employees with regular daytime work schedules we then examine the empirical relation between the resulting index of the recreational quality of the weather hereafter referred to simply as weather quality and the incidence of short term spells of sickness absenteeism reported in survey data comparing the magnitude of this relation across workers facing different levels of sick pay job protection and job finding rates

the determinants of dismissals tests of the shirking model with individual data abstract this study tests the shirking model by estimating dismissal equations with data on individual workers fires were found to depend negatively on firm size and on the local and industry unemployment rates and to depend positively on the capital labor ratio

the politics and economics of offshore outsourcing abstract this paper reviews the political uproar over offshore outsourcing connected with the release of the economic report of the president erp in february 2004 examines the differing ways in which economists and non economists talk about offshore outsourcing and assesses the empirical evidence on the importance of offshore outsourcing in accounting for the weak labor market from 2001 to 2004 even with important gaps in the data the empirical literature is able to conclude that offshore outsourcing is unlikely to have accounted for a meaningful part of the job losses in the recent downturn or contributed much to the slow labor market rebound the empirical evidence to date while still tentative actually suggests that increased employment in the overseas affiliates of us multinationals is associated with more employment in the us parent rather than less

appropriation of common access natural resources through exploration the relevance of the open loop concept in this paper the open loop equilibrium is rehabilitated as a sensible concept for analyzing common property situations in a model of natur al resource exploration in which the sole motivation to explore prior to extraction arises from a strategic incentive to preempt competito rs a consistency rule to the exploration game is applied under which the commonality of reserves is preserved even if strategies are open loop under this rule the so often claimed efficiency of the common property open loop equilibrium is lost copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

making do with less working harder during recessions why did productivity rise during recent recessions one possibility is that average worker quality increased a second is that each incumbent worker produced more the second effect is termed making do with less using data from 2006 to 2010 on individual worker productivity from a large firm these effects can be measured and separated for this firm most of the gain in productivity during the recession was a result of increased effort additionally the increase in effort is correlated with the increase in the local unemployment rate presumably reflecting the costs of losing a job

wage stickiness offshoring and unemployment abstract this note investigates how the effect of offshoring on unemployment is influenced by the wage setting process we assume staggered wage contracts in an otherwise standard search and matching model in this setup the contract wage depends also on expected future conditions we show that more flexibility in the wage contracting process induces greater offshoring a decrease in the worker s job finding probability and higher worker s wage within job spells notably less stickiness leads to a fall in the rents that firms can extract by producing domestically

winners and losers a micro level analysis of international outsourcing and wages our paper investigates the link between international outsourcing and wages utilizing a large household panel and combining it with industry level information on industries outsourcing activities from input output tables this approach avoids prob lems such as aggregation bias potential endogeneity bias and poor skill definitions that commonly hamper industry level studies we find that outsourcing has had a marked impact on wages applying two alternative skill classifications we find evidence that a 1 percentage point increase in outsourcing reduced the wage for workers in the lowest skill categories by up to 1 5 while it increased wages for high skilled workers by up to 2 6 this result is robust to a number of different specifications jel classification f16 j31 gagnants et perdants une analyse micro economique de la sous traitance internationale et des salaires ce memoire etudie le lien entre la sous traitance internationale et les salaires a l aide de donnees d un grand panel de menages qu on combine avec des donnees au niveau des industries sur les activites de sous traitance de celles qui en font obtenues des tableaux interindustriels cette approche evite les problemes qui habituellement polluent les etudes au niveau de l industrie biais d agregation biais d endogeneite potentielle mauvaises definitions des habiletes on decouvre que la sous traitance a un effet sur les salaires a l aide de differentes formes de classification des habiletes il appert qu un point de pourcentage d augmentation dans la sous traitance reduit les salaires des travailleurs dans les categories d habilete les plus basses de 1 5 alors qu il accroit les salaires de travailleurs specialises de 2 6 ce resultat est robuste et avere meme quand on utilise diverses specifications

labor supply of new york city cabdrivers one day at a time life cycle models of labor supply predict a positive relationship between hours supplied and transitory changes in wages because such changes have virtually no effect on life cycle wealth previous attempts to test this hypothesis empirically with time series data have not been supportive estimated elasticities are typically negative or nonsignificant such analyses however are vulnerable to measurement error and other estimation problems we use data on daily observations of wages and hours for new york city cab drivers to estimate the supply response to transitory fluctuations in wages cab drivers decide daily how many hours to supply and face wages that are positively correlated within days but largely uncorrelated between days using these data our central finding is that wage elasticities are persistently negative from 5 to 1 in three different samples even after correcting for measurement error using instrumental variables these negative wage elasticities challenge the notion that cab drivers trade off labor and leisure at different points in time and question the empirical adequacy of life cycle formulations of labor supply

international fragmentation boon or bane for domestic employment abstract in this paper we introduce the fairness approach to efficiency wages into a standard model of international fragmentation this gives us a theoretical framework in which wage inequality and unemployment rates are co determined and therefore the public concern can be addressed that international fragmentation and outsourcing to low wage countries lead to domestic job losses we develop a novel diagrammatic tool to illustrate the main labour market effects of international fragmentation we also explore how preferences for fair wages and the size of unemployment benefits govern the employment effects of outsourcing and critically assess the role of political intervention that aims to reduce unemployment benefits under internationally fragmented production

reference points and effort provision a key open question for theories of reference dependent preferences is what determines the reference point one candidate is expectations what people expect could affect how they feel about what actually occurs in a real effort experiment we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision we find that effort provision is significantly different between treatments in the way predicted by models of expectation based reference dependent preferences if expectations are high subjects work longer and earn more money than if expectations are low

empirical tests of efficiency wage models 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

growing apart the changing firm size wage premium and its inequality consequences wage inequality in the united states has risen dramatically over the past few decades prompting scholars to develop a number of theoretical accounts for the upward trend this study argues that large firms have been a prominent labor market institution that mitigates inequality by compensating their low and middle wage employees with a greater premium than their higher wage counterparts large u s firms reduced overall wage dispersion yet broader changes to employment relations associated with the demise of internal labor markets and the emergence of alternative employment arrangements have undermined large firms role as an equalizing institution using data from the current population survey and the survey of income and program participation we find that in 1989 although all private sector workers benefited from a firm size wage premium the premium was significantly higher for individuals at the lower end and middle of the wage distribution compared to those at the higher end between 1989 and

radical political economy and the economics of labor markets this essay is the result of a long process involving many drafts and revisions i am grateful to duncan foley for the careful and constructive criticisms offered throughout the project the following people read the manuscript at different stages and although they often disagreed with me they generously provided helpful comments two anonymous referees for this journal samuel bowles william dickens greg dow robert drago richard edwards kathleen engel richard freeman james galbraith herbert gintis jody hoffer gittel sandfordjacoby tom kochan david levine lisa lynch paul osterman michael piore bob rebitzer gil skilman dan slesnick robert thomas and tsuyoshi tsuru comments from participants in seminars at the massachusetts institute of technology university of massachusetts at amherst and hitotsubashi university are also gratefully acknowledged