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Efficiency Wages and Employment Rents: The Employer-Size Wage Effect in the Job Market for Lawyers

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  • Rebitzer, James B
  • Taylor, Lowell J

Abstract

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, the authors find that associates in these large firms post substantial performance bonds while also receiving substantial, ex ante rents. Copyright 1995 by University of Chicago Press.

Suggested Citation

  • Rebitzer, James B & Taylor, Lowell J, 1995. "Efficiency Wages and Employment Rents: The Employer-Size Wage Effect in the Job Market for Lawyers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 678-708, October.
    • Handle: RePEc:ucp:jlabec:v:13:y:1995:i:4:p:678-708
    DOI: 10.1086/298389
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    References listed on IDEAS

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    1. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290, National Bureau of Economic Research, Inc.
    2. Bowles, Samuel, 1985. "The Production Process in a Competitive Economy: Walrasian, Neo-Hobbesian, and Marxian Models," American Economic Review, American Economic Association, vol. 75(1), pages 16-36, March.
    3. 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.
    4. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75(2), pages 123-123.
    5. Levine, David I, 1992. "Can Wage Increases Pay for Themselves? Tests with a Production Function," Economic Journal, Royal Economic Society, vol. 102(414), pages 1102-1115, September.
    6. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September.
    7. Mellow, Wesley, 1982. "Employer Size and Wages," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 495-501, August.
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    Citations

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    Cited by:

    1. James B. Rebitzer & Lowell J. Taylor, 2007. "When Knowledge Is an Asset: Explaining the Organizational Structure of Large Law Firms," Journal of Labor Economics, University of Chicago Press, vol. 25(2), pages 201-229.
    2. Pull, Kerstin, 1999. "What is the fair wage? A model of as-if-co-operation," Quint-Essenzen 58, University of Trier, Institute for Labour Law and Industrial Relations in the European Community (IAAEG).
    3. Volker Mahnke, 2001. "The Process of Vertical Dis-Integration: An Evolutionary Perspective on Outsourcing," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 5(3), pages 353-379, September.
    4. Koch, Alexander K. & Peyrache, Eloic, 2005. "Tournaments, Individualized Contracts and Career Concerns," IZA Discussion Papers 1841, Institute of Labor Economics (IZA).
    5. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-21.
    6. Alexander K. Koch & Eloïc Peyrache, 2011. "Aligning Ambition and Incentives," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(3), pages 655-688.
    7. Adam Seth Litwin & Phillip H. Phan, 2013. "Quality over Quantity: Reexamining the Link between Entrepreneurship and Job Creation," ILR Review, Cornell University, ILR School, vol. 66(4), pages 833-873, July.
    8. Boylan, Richard T & Long, Cheryl X, 2005. "Salaries, Plea Rates, and the Career Objectives of Federal Prosecutors," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 627-651, October.
    9. Ann Bartel & Brianna Cardiff-Hicks & Kathryn Shaw, 2013. "Compensation Matters: Incentives for Multitasking in a Law Firm," NBER Working Papers 19412, National Bureau of Economic Research, Inc.
    10. Rebitzer, James B. & Taylor, Lowell J., 2011. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 8, pages 701-772, Elsevier.
    11. Clive Belfield & Xiangdong Wei, 2004. "Employer size-wage effects: evidence from matched employer-employee survey data in the UK," Applied Economics, Taylor & Francis Journals, vol. 36(3), pages 185-193.
    12. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    13. Ferreira, Daniel & Nikolowa, Radoslawa, 2024. "Prestige, promotion, and pay," LSE Research Online Documents on Economics 118369, London School of Economics and Political Science, LSE Library.
    14. Nuno Garoupa & Fernando Gómez, 2002. "Cashing by the hour: Why large law firms prefer hourly fees over contingent fees," Economics Working Papers 639, Department of Economics and Business, Universitat Pompeu Fabra.
    15. McNabb, Robert & Wass, Victoria, 2006. "Male-female earnings differentials among lawyers in Britain: a legacy of the law or a current practice?," Labour Economics, Elsevier, vol. 13(2), pages 219-235, April.
    16. Goerke, Laszlo, 1997. "Taxes in an efficiency wage economy," Discussion Papers, Series II 335, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    17. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    18. Michael, Bryane & Falzon, Joseph & Shamdasani, Ajay, 2015. "A Theory of Financial Services Competition, Compliance and Regulation," EconStor Preprints 107400, ZBW - Leibniz Information Centre for Economics.
    19. Yair Listokin, 2005. "Future‐Oriented Gang Members?," American Journal of Economics and Sociology, Wiley Blackwell, vol. 64(4), pages 1073-1083, October.

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