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Efficiency Wages: Signals or Incentives An Empirical Study of the Relationship between Wage and Commitment

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  • Peter Mühlau
  • Siegwart Lindenberg

Abstract

Efficiency wage theories arguethat firms induce their employees to work in a moredisciplined way by paying high wages. Two basicmechanisms have been pointed out in economics about how these wage premia motivate employees.The incentives-driven `shirking model' impliesthat employees who have a highly paid job workin a more disciplined way so as to avoid beingdismissed. The ``gift exchange'' model is basedon the assumption that high wages change therelationship between employer and employee.Empirical evidence on the incentives approachis mixed and a thorough competitive testingagainst the gift exchange model was notpossible due to the fact that the latter wasnot worked out enough. However, there is a relational theory of efficiency wages which isworked out in detail in order to allow directcompetitive testing. This relationalsignaling approach, as it is called, is basedon framing effects and comes to specifichypotheses about the conditions under whichefficiency wages work. These hypothesescontrast sharply with predictions from theincentives approach. The paper presents anempirical test of the theories and shows thatthe data clearly reject the incentive-basedpredictions and confirm the relationalsignaling predictions. Copyright Kluwer Academic Publishers 2003

Suggested Citation

  • Peter Mühlau & Siegwart Lindenberg, 2003. "Efficiency Wages: Signals or Incentives An Empirical Study of the Relationship between Wage and Commitment," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 7(4), pages 385-400, December.
    • Handle: RePEc:kap:jmgtgv:v:7:y:2003:i:4:p:385-400
    DOI: 10.1023/A:1026261223790
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    References listed on IDEAS

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    1. Wadhwani, Sushil B & Wall, Martin, 1991. "A Direct Test of the Efficiency Wage Model Using UK Micro-data," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 529-548, October.
    2. De Dreu, Carsten K. W. & Boles, Terry L., 1998. "Share and Share Alike or Winner Take All?: The Influence of Social Value Orientation upon Choice and Recall of Negotiation Heuristics, , ," Organizational Behavior and Human Decision Processes, Elsevier, vol. 76(3), pages 253-276, December.
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    4. Bradley T. Ewing & James E. Payne, 1999. "The Trade-Off Between Supervision and Wages: Evidence of Efficiency Wages from the NLSY," Southern Economic Journal, John Wiley & Sons, vol. 66(2), pages 424-432, October.
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    7. Rebitzer, James B., 1995. "Is there a trade-off between supervision and wages? An empirical test of efficiency wage theory," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 107-129, September.
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    Cited by:

    1. Yang, Sheng-Ping & DeBeaumont, Ronald, 2010. "Pay as incentive or pay as reward? The case of Taiwan," Journal of Asian Economics, Elsevier, vol. 21(1), pages 76-86, February.
    2. César Rodríguez Gutiérrez & Juan Francisco Canal Domínguez, 2012. "Is Workers' Effort Sensitive to Contract Type and Firm Ownership? The Spanish Case," Revista de Economía Laboral - Spanish Journal of Labour Economics, Asociación Española de Economía Laboral - AEET, vol. 9, pages 1-27.
    3. Siegwart Lindenberg, 2014. "Sustainable cooperation needs tinkering with both rules and social motivation," Journal of Bioeconomics, Springer, vol. 16(1), pages 71-81, April.
    4. Frédérique Six, 2007. "Building interpersonal trust within organizations: a relational signalling perspective," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 11(3), pages 285-309, September.
    5. Fallahi, Firouz & Sakineh, Sojoodi & Mehin Aslaninia, Nasim, 2010. "Determinants of Labor Productivity in Iran’s Manufacturing Firms: With Emphasis on Labor Education and Training," MPRA Paper 27447, University Library of Munich, Germany.
    6. Stea, Diego & Foss, Nicolai J. & Christensen, Peter Holdt, 2015. "Physical separation in the workplace: Separation cues, separation awareness, and employee motivation," European Management Journal, Elsevier, vol. 33(6), pages 462-471.
    7. Siegwart Lindenberg, 2013. "Cognition and governance: why inventices have to take a back seat," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 3, Edward Elgar Publishing.

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