TY  - JOUR
AU  - Katz,Lawrence F.
TI  - Efficiency Wage Theories:  A Partial Evaluation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1906
PY  - 1986
Y2  - April 1986
UR  - http://www.nber.org/papers/w1906
L1  - http://www.nber.org/papers/w1906.pdf
N1  - Author contact info:
Lawrence F. Katz
Department of Economics
Harvard University
Cambridge, MA  02138
Tel: 617/495-5148
Fax: 617/613-1245
E-Mail: lkatz@harvard.edu
M1  - published as Lawrence F. Katz. "Efficiency Wage Theories: A Partial Evaluation," in Stanley Fischer, editor, "NBER Macroeconomics Annual 1986, Volume 1" MIT Press (1986)

AB  - This paper surveys recent developments in the literature on efficiency wage theories of unemployment. Efficiency wage models have in common the property that in equilibrium firms may find it profitable to pay wages in excess of market clearing. High wages can help reduce turnover, elicit worker effort, prevent worker collective action, and attract higher quality employees. Simple versions of efficiency wage models can explain normal involuntary unemployment,segmented labor markets, and wage differentials across firms and industries for workers with similar productive characteristics. Deferred payment schemes andother labor market bonding mechanisms appear to be able to solve some efficiency wage problems without resultant job rationing and involuntary unemployment. A wide variety of evidence on inter-industry wage differences is analyzed. Efficiency wage models appear useful in explaining the observed pattern of wage differentials.The models also provide several potential mechanisms for cyclical fluctuations in response to aggregate demand shocks.
ER  -