Motivation and Markets

W. Bentley Macleod and James Malcomson ()

No 339., Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: In standard shirking models of efficiency wages, workers are motivated only by high wages. Yet 23% of young US workers report receiving some form of performance pay. This paper extends the efficiency wage framework using the theory of self-enforcing agreements to allow for performance pay in the form of bonuses. The result is a simple model of wage formation that helps explain a number of apparently unrelated phenomena in labor markets. First, in efficient markets performance pay is preferred to an efficiency wage when the cost of having a job vacant is low and qualified workers are in short supply. Second, more capital intensive industries offer higher pay than less capital intensive industries, as observed in studies of inter-industry wages differentials. Third, sustaining an efficient outcome requires a social convention similar to the notion of a fair wage, although the outcome itself is determined by fundamentals and not by exogenously imposed notions of what is fair. Finally, a two-sector version of the model makes some predictions about the relationships between turnover and wages and between wages, growth and unemployment.

Keywords: Efficiency wages; merit pay; migration; motivation; wage differentials. (search for similar items in EconPapers)
Date: 1997-01-01
View list of references View citations in EconPapers

Downloads: (external link)
http://fmwww.bc.edu/EC-P/WP339.pdf (application/pdf)

Related works:
Working Paper: Motivation and Markets (1997)
Journal Article: Motivation and Markets (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:boc:bocoec:339

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics
Address: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Contact information at EDIRC.
Series data maintained by Christopher F Baum ().