Abstract
The primary focus of this paper is on efficiency wages and their testable implications. In particular the nature of the relationship between efficiency wages, productivity and the make up of the labour force is analysed, modelled and subjected to an empirical test. This theory is consistent with the views of many managers and personal administrators, who tend to ascribe primary importance in wage setting to indirect control of the firm's workforce. Here we test a labour augmenting production function where effort depends not only on wages but also on the proportion of temporary workers.
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