NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Carrots and Sticks: Pay, Supervision and Turnover

Jonathan S. Leonard

NBER Working Paper No. 2176
Issued in February 1987
NBER Program(s):   LS

Large and persistent differences across industries in wages paid for given occupations have commonly been observed. Recently, the efficiency wage model (EWM) has been advanced as an explanation for these wage differentials. The shirking version of the EWM assumes a trade-off between self-supervision and external supervision. The turnover version assumes turnover is costly to the firm. Variation across firms in the cost of monitoring/shirking or turnover then are hypothesized to account for wage variation across firms for homogeneous workers. This paper presents empirical evidence of the trade-off of wage premiums for supervisory intensity and turnover. A new sample of 200 firms in one sector in one state in 1982 is analyzed. Little evidence is found to support either version of EWM. The substantial variation in wages for narrowly defined occupations across firms remains largely unexplained.

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Document Object Identifier (DOI): 10.3386/w2176

Published: Leonard, Jonathan S. "Carrots and Sticks: Pay, Supervision and Turnover," Journal of Labor Economics, Vol. 5, No. 4, Part 2, October 1987, pp. 5136-5 152.

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