IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-19-00620.html
   My bibliography  Save this article

Efficiency Wages with Endogenous Monitoring

Author

Listed:
  • Yanay Farja

    (Tel-Hai College)

  • Ori Zax

    (Faculty of Economics, Ashkelon Academic College)

Abstract

In the standard efficiency wage model, the monitoring level chosen by firms is exogenous and observable. In this paper, the level of monitoring is endogenized—chosen by firms and unobserved by workers. As a result, firms have an incentive to decrease the monitoring of employees for any given beliefs among workers about the chosen level of monitoring. We show that sufficiently patient firms are able to retain some control over the monitoring level. We also show that high-tech firms monitor their workers more and demand a higher level of effort than do low-tech firms.

Suggested Citation

  • Yanay Farja & Ori Zax, 2020. "Efficiency Wages with Endogenous Monitoring," Economics Bulletin, AccessEcon, vol. 40(1), pages 248-261.
    • Handle: RePEc:ebl:ecbull:eb-19-00620
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2020/Volume40/EB-20-V40-I1-P23.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Walsh, Frank, 1999. "A Multisector Model of Efficiency Wages," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 351-376, April.
    2. Thomas Cooley & Ramon Marimon & Vincenzo Quadrini, 2004. "Aggregate Consequences of Limited Contract Enforceability," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 817-847, August.
    3. Edward P. Lazear & Kathryn L. Shaw & Christopher Stanton, 2016. "Making Do with Less: Working Harder during Recessions," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 333-360.
    4. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    5. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214, Elsevier.
    6. Thomas F. Cooley & Vincenzo Quadrini, 2001. "Financial Markets and Firm Dynamics," American Economic Review, American Economic Association, vol. 91(5), pages 1286-1310, December.
    7. McKinley Blackburn & David Neumark, 1992. "Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1421-1436.
    8. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    9. 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.
    10. Rongzhu Ke & Jin Li & Michael Powell, 2018. "Managing Careers in Organizations," Journal of Labor Economics, University of Chicago Press, vol. 36(1), pages 197-252.
    11. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1125-1156.
    12. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    13. 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.
    14. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bhaskar, V. & To, Ted, 2003. "Oligopsony and the distribution of wages," European Economic Review, Elsevier, vol. 47(2), pages 371-399, April.
    2. John Burger & Stephen Walters, 2008. "Testing Fair Wage Theory," Journal of Labor Research, Springer, vol. 29(4), pages 318-332, December.
      • John D. Burger & Stephen J.K. Walters, 2006. "Testing Fair Wage Theory," Working Papers 0623, International Association of Sports Economists;North American Association of Sports Economists.
    3. Marco Guerrazzi, 2020. "Efficiency-Wage Competition: What Happens as the Number of Players Increases?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 6(1), pages 13-35, March.
    4. Claudio Michelacci & Vincenzo Quadrini, 2005. "Borrowing from Employees: Wage Dynamics with Financial Constraints," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 360-369, 04/05.
    5. Veronique Genre & Karsten Kohn & Daphne Momferatou, 2011. "Understanding inter-industry wage structures in the euro area," Applied Economics, Taylor & Francis Journals, vol. 43(11), pages 1299-1313.
    6. Claudio Michelacci & Vincenzo Quadrini, 2009. "Financial Markets and Wages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(2), pages 795-827.
    7. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    8. Jeremy T. Fox, 2009. "Firm-Size Wage Gaps, Job Responsibility, and Hierarchical Matching," Journal of Labor Economics, University of Chicago Press, vol. 27(1), pages 83-126, January.
    9. Paige Ouimet & Elena Simintzi, 2021. "Wages and Firm Performance: Evidence from the 2008 Financial Crisis [The effect of wage bargains on the stock market value of the firm]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(2), pages 273-305.
    10. Valeria Cirillo & Matteo Sostero & Federico Tamagni, 2017. "Innovation and within-firm wage inequalities: empirical evidence from major European countries," Industry and Innovation, Taylor & Francis Journals, vol. 24(5), pages 468-491, July.
    11. Cahill, Miles B., 2000. "Exploring the interaction between efficiency wages and labor market frictions," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(1), pages 121-137.
    12. Nicole Guertzgen, 2009. "Rent‐sharing and Collective Bargaining Coverage: Evidence from Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 323-349, June.
    13. repec:dau:papers:123456789/5173 is not listed on IDEAS
    14. Takako Fujiwara‐Greve & Henrich R. Greve, 2004. "The Role of Expectation on Job Search and the Firm Size Effect on Wages," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 56-85, March.
    15. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    16. Jonas Agell, 2004. "Why are Small Firms Different? Managers’ Views," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 437-452, October.
    17. Giuseppe Bertola & Pietro Garibaldi, 2001. "Wages and the Size of Firms in Dynamic Matching Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 335-368, April.
    18. Feng, Shuaizhang & Zheng, Bingyong, 2010. "Imperfect Information, On-the-Job Training, and the Employer Size-Wage Puzzle: Theory and Evidence," IZA Discussion Papers 4998, Institute of Labor Economics (IZA).
    19. Schmieder, Johannes F., 2023. "Establishment age and wages," Journal of Econometrics, Elsevier, vol. 233(2), pages 424-442.
    20. William T. Dickens & Lawrence F. Katz & Kevin Lang & Lawrence H. Summers, 1987. "Employee Crime, Monitoring, and the Efficiency Wage Hypothesis," NBER Working Papers 2356, National Bureau of Economic Research, Inc.
    21. Schlicht, Ekkehart, . "Job Rents in a Stylized Labor Market," Chapters in Economics,, University of Munich, Department of Economics.
    22. Måns Söderbom & Francis Teal & Anthony Wambugu, 2002. "Does firm size really affect earnings?," CSAE Working Paper Series 2002-08, Centre for the Study of African Economies, University of Oxford.
    23. Majumdar, Sumit K., 2010. "Institutional changes, firm size and wages in the telecommunications sector," Information Economics and Policy, Elsevier, vol. 22(3), pages 201-217, July.

    More about this item

    Keywords

    Efficiency wages; Repeated Games; Relational contracts;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-19-00620. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.