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Efficiency wages: Variants and implications

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  • Ekkehart Schlicht

    (Ludwig-Maximilians-Universität München, Germany)

Abstract

Higher wages increase labor costs but also improve the productivity of the labor force in several ways. If firms take this into account and set their wages accordingly, the resulting wages could fail to adjust demand and supply but may induce phenomena like over-education, discrimination, regional wage differentials, and a tendency for larger firms to pay higher wages. All these phenomena are quantitatively important and well-established empirically. Efficiency wage theory provides an integrated theoretical explanation rather than a sundry list of reasons, and offers an efficiency argument for progressive income taxation.

Suggested Citation

  • Ekkehart Schlicht, 2016. "Efficiency wages: Variants and implications," IZA World of Labor, Institute of Labor Economics (IZA), pages 275-275, July.
    • Handle: RePEc:iza:izawol:journl:y:2016:n:275
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    References listed on IDEAS

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    1. Peter Dolton & Chiara Rosazza Bondibene & Jonathan Wadsworth, 2012. "Employment, Inequality and the UK National Minimum Wage over the Medium‐Term," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(1), pages 78-106, February.
    2. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 437-459.
    3. 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.
    4. Schlicht, Ekkehart, 2010. "Selection wages and discrimination," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-30.
    5. Büttner, Thomas & Jacobebbinghaus, Peter & Ludsteck, Johannes, 2010. "Occupational upgrading and the business cycle in West Germany," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-37.
    6. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-342, April.
    7. Alexandra Spitz-Oener, 2006. "Technical Change, Job Tasks, and Rising Educational Demands: Looking outside the Wage Structure," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 235-270, April.
    8. Schlicht, Ekkehart, 1992. "Wage Generosity," Munich Reprints in Economics 3165, University of Munich, Department of Economics.
    9. Campbell, Carl M, III, 1993. "Do Firms Pay Efficiency Wages? Evidence with Data at the Firm Level," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 442-470, July.
    10. Mortensen, Dale T, 1970. "Job Search, the Duration of Unemployment, and the Phillips Curve," American Economic Review, American Economic Association, vol. 60(5), pages 847-862, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Überqualifikation
      by Ekkehart Schlicht in Funktionale Staatsfinanzen on 2018-03-11 08:17:00
    2. Ein interessanter empirischer Befund zur zunehmenden Lohnungleichheit
      by Ekkehart Schlicht in Funktionale Staatsfinanzen on 2017-10-20 12:46:00

    RePEc Biblio mentions

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    1. > Labor Economics > Efficiency wages

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    Cited by:

    1. Askenazy, Philippe & Cottineau, Clémentine, 2022. "The geography of collective bargaining in multi-establishment companies: a strategic choice of employers," CEPREMAP Working Papers (Docweb) 2205, CEPREMAP.
    2. de Pinto Marco & Goerke Laszlo, 2019. "Efficiency Wages in Cournot-Oligopoly," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(4), pages 1-13, October.
    3. Fábio Batista & José Eduardo Matos & Miguel Costa Matos, 2017. "Assessing the Competitiveness of the Portuguese Footwear Sector," GEE Papers 0066, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Feb 2017.
    4. Tanaka, Yasuhito, 2021. "Involuntary unemployment in overlapping generations model due to instability of the economy and fiscal policy for full-employment," MPRA Paper 106214, University Library of Munich, Germany.
    5. Andrew Weaver, 2022. "Who Has Trouble Hiring? Evidence from a National IT Survey," ILR Review, Cornell University, ILR School, vol. 75(3), pages 608-637, May.

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    More about this item

    Keywords

    efficiency wages; selection wages; turnover; morale; discipline;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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