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Efficiency Wages And Subjective Performance Pay

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  • HUANXING YANG

Abstract

This paper studies optimal relational contracts in motivating workers in a market setting. We find that labor markets with higher turnover costs will use more subjective performance pay and less efficiency wages and that in those markets, the total wage payment is lower and the equilibrium employment level is higher. Surprisingly, under certain conditions, an increase in turnover costs leads to higher social welfare. Incorporating workers’ search costs, we show that wages are procyclical in booms and are either rigid or countercyclical during recessions. The predictions of the model are consistent with some empirical evidence. (JEL D82, J33, J41, J63)

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  • Huanxing Yang, 2008. "Efficiency Wages And Subjective Performance Pay," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 179-196, April.
    • Handle: RePEc:bla:ecinqu:v:46:y:2008:i:2:p:179-196
    DOI: 10.1111/j.1465-7295.2007.00069.x
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    Cited by:

    1. Matthias Fahn & Takeshi Murooka, 2021. "Informal Incentives, Labor Supply, and the Effect of Immigration on Wages," Economics working papers 2021-12, Department of Economics, Johannes Kepler University Linz, Austria.
    2. Cherie B. Orpia, 2022. "Work Performance Influence on Employee Motivation and Business Productivity in the Accommodation Industry of Ilocos Norte, Philippines," Technium Social Sciences Journal, Technium Science, vol. 35(1), pages 433-447, September.
    3. Fatema Sultana & Rashedul Islam & S.M. Yusuf Ali, 2021. "Does Motivation Impact on Employee Performance? A Study on Non-Banking Financial Institutions of Bangladesh," International Journal of Human Resource Studies, Macrothink Institute, vol. 11(3), pages 8399-8399, December.
    4. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers 12-054/1, Tinbergen Institute.
    5. Peter Cappelli & Martin J. Conyon, 2018. "What Do Performance Appraisals Do?," ILR Review, Cornell University, ILR School, vol. 71(1), pages 88-116, January.
    6. Huanxing Yang, 2013. "Nonstationary Relational Contracts With Adverse Selection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 525-547, May.
    7. Matthias Fahn & Takeshi Murooka, 2022. "Informal Incentives and Labor Markets," Economics working papers 2022-05, Department of Economics, Johannes Kepler University Linz, Austria.
    8. Radoslawa Nikolowa, 2017. "Motivate and select: Relational contracts with persistent types," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 624-635, September.
    9. Wu Joseph S. K. & Ho Chi Pui, 2017. "The Shapiro-Stiglitz Model with Non-constant Marginal Utility," Open Economics, De Gruyter, vol. 1(1), pages 36-48, August.
    10. John G Sessions & John D Skatun, 2019. "A bonus given: noise, effort and efficiency in a flat hierarchy," Economics Bulletin, AccessEcon, vol. 39(4), pages 2527-2532.
    11. Manuel David Cruz, 2022. "Labor productivity, real wages, and employment: evidence from a panel of OECD economies over 1960-2019," Working Papers PKWP2203, Post Keynesian Economics Society (PKES).
    12. Fahn, Matthias, 2011. "Three Essays on Commitment and Information Problems," Munich Dissertations in Economics 13750, University of Munich, Department of Economics.
    13. John G. Sessions & John D. Skåtun, 2022. "Luck in a Flat Hierarchy: Wages, Bonuses and Noise," The Economic Record, The Economic Society of Australia, vol. 98(323), pages 373-391, December.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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