Motivation and Markets

W. Bentley Macleod and James Malcomson ()

Discussion Paper Series In Economics And Econometrics from University of Southampton, Economics Division, School of Social Sciences

Abstract: Many workers receive pay based on subjectively assessed performance, yet the shirking model of efficiency wages excludes it. This paper incorporates such pay, with the following results. Performance pay is more efficient than efficiency wages when the costs of having a job vacant are low and qualified workers in short supply. More capitl-intensive industries pay more than less capital-intensive industries, as observed in studies of interindustry wages differentials. Sustaining an efficient outcome requires a social convention similar to the notion of a fair wage. The model also makes predictions about the relationship between turnover, wages, growth and unemployment.

Date: 1997-01-01
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Working Paper: Motivation and Markets (1997)
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Persistent link: http://EconPapers.repec.org/RePEc:stn:sotoec:9720

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