Efficiency Wages and Equilibrium Wages

Dan Black and John E Garen

Economic Inquiry, 1991, vol. 29, issue 3, 525-40

Abstract: The authors present a labor-market model that allows as special cases a market paying equilibrium wages, one paying disequilibrium efficiency wages, and a market combining the two. Their analysis indicates that industrial wage differentials are not necessarily evidence of efficiency wages. Such differentials may be explained by differences across industries in labor performance standards or in the accuracy with which worker effort can be measured. The authors do find, however, that the relationship between wages and dismissals can be used to distinguish a market paying equilibrium wages from one paying efficiency wages. Copyright 1991 by Oxford University Press.

Date: 1991
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