Efficiency wages and the inter industry wage structure pdf

Employers discriminatory behavior and the estimation of wage discrimination. Efficiency wage theory, labor markets, and adjustment. Interindustry wage differences and theories of wage. Wage differentials, matching models, social networks, efficiency wage models, congestion externalities, unemployment. In short, the behavior of the chilean labor market poses a number of questions for the competitive hypothesis. Efficiency wages and the interindustry wage structure prezi. Interindustry factor mobility, particularly labor mobility, is, therefore, of paramount importance in achieving this supply response. Paul douglas 1930, a pioneer in empirical studies of the wage structure, studied the evolution. High wages can help reduce turnover, elicit worker effort, prevent worker collective action, and attract higher quality employees. The results of this research are consistent with the predictions of efficiency wage models. Persistent differences in pay across industries due to compensating differences, heterogeneity in unobserved worker ability, or efficiency wages may mask fluctuations in industry wages caused by industry demand shocks. Econometrica 56, 259293 derive from a general specification of wage equations with dummy variables which cannot be directly estimated.

Section 2 presents our basic econometric results using data from the current population survey cps and documents the existence of substantial interindustry variations in wages. Interindustry wage differentials in dummy variable models. Efficiency wages and the interindustry wage structure econpapers. Interindustry and firm size effects on wage abe, masahiro. Nevertheless, their existence remains a complex and unresolved puzzle.

Interindustry wage differentials bureau of labor statistics. Efficiency wages and the interindustry wage structure icpsr 1025 version date. In some cases, the efficiency wage theory is a triviality. Consideration of wage structure is also to be examined in greater details. Efficiency wages and the interindustry wage structure, econometrica, econometric society, vol.

Cappelli, peter and keith chauvin 1991 an interplant test of the efficiency wage hypothesis. Rigidity in the wage structure has been singled out as an important factor preventing efficient interindustry labor mobility, thereby contributing to the persistence of high unemployment. The extent to which this relation between wage differentials and firm characteristics supports efficiency wage models is discussed. On this basis we discuss some possible structural policies to fight. A selectivity model of employersize wage differentials. This paper develops empirical tests of efficiencywage hypotheses and applies these tests to data on a regulated firm. The role of unmeasured abilities in explaining interindustry wage differentials is still unsettled. Section 3 considers labor quality differences as an explanation of the industry wage structure. Working paper series no 1022 march 2009 abstract 4 nontechnical summary 5 1 introduction 6 2 interindustry wage differentials. Longterm wage contracts with industryspecific human. This paper uses crosssectional and longitudinal data to examine differences in pay for equallyskilled workers in different ind ustries.

That is, it must postulate that over some range profits are an increasing function of the wage rate offered. Working paper series no 1022 march 2009 abstract 4 nontechnical summary 5 1 introduction 6 2 inter industry wage differentials. Higher wages boost employee morale and increase worker productivity. He finds a widening of crossindustry inequality in the total burden of injuries with a relative drop in injuries in industries with rising relative earnings. Finally, evidence is presented demonstrating that turnover has a negative relationship with industry wage differentials. The major finding is that there is substantial dispersion in. This study reports a metaanalysis of 75 estimates of the efficiencywage effect. Intraindustry trade gives opportunity for businesses to benefit from the economies of scale, as well as use their comparative advantages. A burgeoning literature on efficiency wage theories suggests that the answer may lie in the negative incentive effects of low. Readings labor economics i economics mit opencourseware. Examples of good jobs provided by these employees included jobs in public utilities, transportation.

Clear evidence of publication selection is also found. Efficiency wages, unemployment and welfare econstor. Among the efficiency wage models, the shirking and the turnover cost models are the most well known and cited. A theory of efficiency wage with multiple unemployment. Efficiency wages and the interindustry wage structure created date. The influence of the efficiency wage can affect the quality of labor a firm employs. High wages make the workers fear to lose their jobs if. In other words, interindustry wage variability should be low where the threat of unionization is low. Summers 1988 efficiency wages and the interindustry wage structure, econometrica, 562 259 93. Hamermesh examines patterns of changes in interindustry differentials in both wages and the total burden of occupational injuries from 1979 to 1995. Efficiency wages and the regulated firm springerlink. Industries with high capitaltolabor ratios, monopoly.

Firms that pay an efficiency wage attract skilled workers and reduce employee turnover. Employment and wage determination, unemployment and labor market policies in romania. The interindustry wage structure is remarkably similar in different eras, in different countries, and among different types of workers. Many theories have sprung up to explain these phenomena, and one of these, efficiency wage. Understanding interindustry wage structures in the euro area. The structure of wages during the economic transition in. Reflections on the interindustry wage structure in unemployment and the structure of labor markets, eds kevin lang and jonathan s. Interindustry wage differentials and the gender wage gap. According to efficiencywage theory, wage levels positively affect employee performance and, moreover, cost minimization requires that employers pay a wage premium above the supply price of labor. Interindustry and firm size effe cts on wage differentials and efficiency wages in japan masahiro abe, dokkyo university isao ohashi, hitotubashi university abstract this paper analyzes the eff ects of i nter industry and firm siz e on wage d ifferentials, focu sing on h ow their estimated effects vary.

In unemployment and the structure of labor markets, ed. Efficiency wages and the interindustry wage structure. Efficiency wages and classical wage theory journal of. Leibenstein, harvey 1957 the theory of underemployment in backward economies, journal of political economy, 65 04, 91 103.

Summersefficiency wages and the interindustry wage structure. Righttowork laws and the extent of unionization, nber working papers 16, national bureau of economic research, inc. Additional analysis finds that the industry wage structure is highly correlated for workers in small and large firms, in different regions of the u. Studies that control for simultaneity tend to report stronger effects. Efficiency wages and inter0industry wage differentials toronto.

Efficiency wage models have in common the property that in equilibrium firms may find it profitable to pay wages in excess of market clearing. The view of interfirm and intersector pay differentials as containing selective economic rent has been supported theoretically by models of efficiency wages and insider power and empirically by associations between product markets, production technologies and profitability, on the one hand, and pay. Since labor efficiency is tied to the wage rate, a fall in the wage rate would reduce worker productivity and hence the profit rate of the firm. To explore these issues, we use companylevel data to estimate. The following section analyses efficiency wages in a macroeconomic setting, developing a general equilibrium model determining the equilibrium real wage and the structural rate of unemployment.

Efficiency wages and the interindustry wage structure jstor. The major finding is that there is substantial dispersion in wages across industries, even after allowing for measured and unmeas ured labor quality, working conditions, fringe benefits, transitory d emand shocks, the threat of unionization, union bargaining power, fi rm size, and other factors. Changes in the wage structure and earnings inequality. Introduction the question of why unemployed workers are unable to bid down the wages of seemingly comparable employed workers and gain jobs has long perplexed economists. Evidence hard to reconcile with competitive wage determination. The standard deviation of estimated wage differentials shows no trend during 1974 1984 and the differentials are highly correlated. As intuitively plausible as efficiency wage theories are, they are difficult to test. Our findings seem to support the wagesupervision tradeoff prediction of the shirking model, and that employers didnt. Efficiency wages and the interindustry wage structure, 1990.

Under the assumption of perfect competition in the output market, at the optimal efficiency wage the firm is just breaking even by employing the marginal worker. Employee referrals and the interindustry wage structure. We find that the inclusion of benefits increases industry dispersion, as measured by the standard deviation of interindustry. For example, firms may find it unprofitable to violate minimum wage laws because of the fines that will be imposed. Early quantitative work on the wage structure examined differences and changes in wages by occupation douglas 1930, ober 1948 and industry slichter 1950, cullen 1956. The key assumption of efficiency wage theory is that wages are used by. Because, a study of wage structure as a crucial issue of wage policy is relevant because of the following factors. Users who downloaded this paper also downloaded these. It reveals a strong efficiencywage effect that depends upon whether researchers control for potential simultaneity between wages and productivity. Annual demographic files we confirm the stability of the interindustry wage structure. This paper uses efficiency wage theory and the existence of communitybased sharing to hypothesize that labor markets in developing countries have multiple equilibria the same economy can be stuck at different levels of unemployment with different levels of wages.

Efficiency wages help to explain the observed stability of intersectoral wage. Jan 3, 1996 view help for published cite this study. Raff and summers 1987 conduct a case study on henry fords introduction of the five dollar day in 1914. Krueger and summers 1988, efficiency wages and the interindustry wage structure, econometrica. Krueger and summers, efficiency wages and the interindustry wage structure, from econometrica, vol. Section 2 presents our basic econometric results using data from the current population survey cps and documents the existence of substantial inter industry and interoccupational variations in wages. The results suggest that interindustry wage differentials could reflect efficiency wages or rentsharing mechanisms and that rentsharing is more likely in industries with firmlevel collective agreements and with highercollective agreement coverage. We exploit a natural experiment provided by the 1990 introduction of the uk national minimum wage nmw to investigate the relationship between wages and monitoring and to test for efficiency wages considerations in a lowwage sector, the uk residential care homes industry. In other words countries will get more economic benefits if they concentrate on producing specific types of products within specific range, according to their comparative advantages rather than producing all ranges of specific products. The model accounts for sectorspecific job rents and involun tary unemployment. Efficiency wages and the economic effects of the minimum. Some direct evidence in favor of efficiency wage theories is presented. The analysis in this paper links together two important strands of literature in labor economics. Supervision and effort in an intertemporal efficiency wage.