Reward
Andrew Blackwell
B.A. Philosophy & Economics, 3d Year 19F Westbourne Terrace London W2 3UN Class C
Introduction In recent years, much economic theory and research has looked at the phenomena of wage rigidity and involuntary unemployment1, and within the domain of labour economics much attention has been devoted to the phenomenon of inter-industry wage differentials. Many theories have sprung up to explain these phenomena, and one of these, Efficiency Wage Theory, has attempted to shed light on all three of them. In short, Efficiency Wage Theory states that the productivity of workers depends positively on their wages, and elucidates certain mechanisms that explain this dependence.
Efficiency Wage Theory
In this essay I would like to briefly describe the Efficiency Wage Theory and the models that constitute it. Then I shall go on to explain what implications the theory has for the clearance (or non-clearance) of labour markets. Subsequently I will look at the empirical research that has been undertaken in this field, pointing out certain methodological problems on the way. To conclude I will argue that Efficiency Wage Theory has strong backing, but that it is not sufficient to as a monocausal explanation for the above phenomena, and that other models can still serve as strong complements in explaining contemporary labour market setups. Efficiency Wage Theory Model and Sub-models
Quoted References: • • • • • G.J. Borjas, Labour Economics (McGraw Hill, 1996) S. Polachek and W.S. Siebert, The Economics of Earnings (Cambridge University Press, 1993) D.I. Levine, "Can wage increases pay for themselves? Tests with a production function", Economic Journal, September 1992 C.M. Campbell and K.S. Kamlani, "The reasons for wage rigidity: evidence from a survey of firms.", Quarterly Journal of Economics August 1997 J. Agell and P. Lundborg, "Theories of pay and unemployment: survey evidence from Swedish manufacturing firms", Scandinavian Journal of Economics June
B.A. Philosophy & Economics, 3d Year 19F Westbourne Terrace London W2 3UN Class C
Introduction In recent years, much economic theory and research has looked at the phenomena of wage rigidity and involuntary unemployment1, and within the domain of labour economics much attention has been devoted to the phenomenon of inter-industry wage differentials. Many theories have sprung up to explain these phenomena, and one of these, Efficiency Wage Theory, has attempted to shed light on all three of them. In short, Efficiency Wage Theory states that the productivity of workers depends positively on their wages, and elucidates certain mechanisms that explain this dependence.
Efficiency Wage Theory
In this essay I would like to briefly describe the Efficiency Wage Theory and the models that constitute it. Then I shall go on to explain what implications the theory has for the clearance (or non-clearance) of labour markets. Subsequently I will look at the empirical research that has been undertaken in this field, pointing out certain methodological problems on the way. To conclude I will argue that Efficiency Wage Theory has strong backing, but that it is not sufficient to as a monocausal explanation for the above phenomena, and that other models can still serve as strong complements in explaining contemporary labour market setups. Efficiency Wage Theory Model and Sub-models
Quoted References: • • • • • G.J. Borjas, Labour Economics (McGraw Hill, 1996) S. Polachek and W.S. Siebert, The Economics of Earnings (Cambridge University Press, 1993) D.I. Levine, "Can wage increases pay for themselves? Tests with a production function", Economic Journal, September 1992 C.M. Campbell and K.S. Kamlani, "The reasons for wage rigidity: evidence from a survey of firms.", Quarterly Journal of Economics August 1997 J. Agell and P. Lundborg, "Theories of pay and unemployment: survey evidence from Swedish manufacturing firms", Scandinavian Journal of Economics June
References: 1980, 1990 1974 & Lundborg 1995:296 9Agell