Efficiency Wage Research Articles

Non-optimality of intellectual capital inputs: a new avenue for research

PurposeThis paper aims to initiate new avenues of research by examining optimal intellectual capital (IC) inputs, introducing three theories into the discussion: diminishing returns to scale, transaction costs economics and efficiency wage theory. In the second part, it advocates for demonstrating the existence of such non-optimality through empirical tests.Design/methodology/approachThis paper is divided into two parts. The first part provides a theoretical justification for the necessity of observing nonlinear relationships between IC inputs and firm performance. In the empirical section, the research design follows a four-step process, each progressively building on insights gained from the preceding phase: (1) establishing a baseline linear regression model; (2) introducing the logarithm of the IC inputs; (3) incorporating the square terms of the IC inputs and (4) investigating the phenomena of over- and under-input in IC.FindingsThe background theories and the obtained results highlight the necessity for firms to adopt a strategic approach to IC, acknowledging the diverse effects of IC components on different outcomes. They emphasize the nonlinear nature of IC returns, underscoring the importance of investing up to an optimal level to maximize benefits.Practical implicationsThe study’s discovery of optimal levels for the components of IC highlights the importance for practitioners to identify and invest up to these optimal levels. This ensures that IC initiatives are strategically aligned to maximize their positive impact on firm performance.Originality/valueThe integration of theories such as diminishing returns to scale, transaction costs economics and efficiency wage theory, alongside traditional frameworks like the resource-based view, the theory of dynamic capabilities and the knowledge-based theory of the firm, opens up new avenues for research on IC. The proposed methodology and measures – from financial reports – provide opportunities for replicating this type of study.

The Influence Of Job Evaluation On The Wage Bill In Public Sector Organizations

Public service is the main driver of growth for most developing countries. It is a key component because it facilitates the delivery of services to the citizens. However, despite the efforts to grow the economy and deliver quality services, there are challenges with the costs associated with ever-increasing public sector wages. Although a well-paid public sector could be more efficient, the wage bill should be maintained at fiscally sustainable levels to enable the achievement of development goals. Kenya like other developing countries has been grappling with the management of costs associated with wages in the public sector, which were growing at an alarming rate. This is mainly because of the large number of employees, arbitrary determination of wages and implementation of the Constitution of Kenya, 2010. This study will seek to examine the influence of human resource strategies for managing the public sector wage bill in Kilifi County, Kenya. The study will particularly focus on human resource strategies such as job evaluation, total rewards, and performance-related pay and their influence on the management of the public sector wage bill in public sector organizations within Kilifi County. These public sector organizations are expected to be implementing these strategies although the degree of implementation may be varying. The study will, therefore, seek to find out the extent to which their application influences the management of the wage bill costs to a manageable level. The study will also examine the theories associated with wage management. The theories of equity, efficiency wage, and public sector motivation will be examined to determine their influence on the management of wages in the public sector. Questionnaires will be developed and self-administered to the human resource management professionals in the public sector organizations. This will enable the Researcher to capture perceptions of the application of these strategies in their organizations. Their in-depth understanding of the human resource strategies being studied will be useful to the study. The study design will be a survey of the 52 government organizations within Kilifi County thus the target population for the survey will be a census of the 52 public sector organizations. The sampling method applied will be purposive thus the HR professionals will be the respondents. The data collected will be analyzed using analysis of variance (ANOVA) which will be used to establish the relationship between the independent variables and the dependent variable. The findings of the study will be presented in the form of tables, charts and statistical measures such as an analysis of variance

Higher official wages reduce petty not grand corruption: Evidence from China

Empirical studies have yielded conflicting findings regarding the impact of official wages on corruption. Based on Efficiency Wage Theory and Public Value Theory, this study posits that one contributing factor to such conflict is the failure to discern between petty and grand corruption. This study expands these theories from two perspectives. Firstly, we contend that increasing official wages leads to decreased petty corruption but not grand corruption. Secondly, we propose that the impact of higher official wages weakens when officials earn more than those employed in the private sector. The two hypotheses are validated on our original Chinese corruption dataset via instrumental variable estimations. This study implies that attempting to reduce grand corruption through increasing official wages would incur significant costs with low returns. However, enhancing public sector wages to match those in the private sector could be a strategy to mitigate petty corruption.

Market power, randomization and regulation

This paper provides an introduction to and overview of the mechanism design approach to textbook monopoly and monopsony pricing problems. Specifically, assuming that agents are privately informed about their values and costs, it shows that the optimal selling and procurement mechanisms quite generally involve rationing, provided the underlying mechanism design problem does not satisfy the regularity assumption of Myerson (1981). Rationing takes the form of underpricing in the case of a monopoly seller and of involuntary unemployment and efficiency wages in the case of a monopsony employer. The paper illustrates these phenomena, as well as the effects of price ceilings and minimum wages, with a leading example that permits closed-form solutions. It also explains why resale tends to undermine the firm's benefits from rationing without eliminating them and discusses emerging issues for the theory of regulation.

Minimum and Living Wages in Jordan and Tunisia

Countries around the world are working to develop social protection floors to help reduce poverty. Ensuring workers can earn adequate wages is an important component of social protection floors. In this paper, we explore who receives minimum, poverty, median, and living wages in Jordan, comparing 2010 and 2016, and in Tunisia in 2014. We demonstrate that while the majority of workers do earn at least minimum and poverty wages, only a minority of workers earn a living wage. The chances of earning minimum, poverty, median, and living wages depend on the characteristics of workplaces, specific work characteristics (especially job formality and skills required), and the demographic characteristics of workers. While results are consistent with wages reflecting, in part, workers’ productivity, they may also reflect rents, efficiency wages, and for minimum wages issues with enforceability and policy design. These findings highlight which workers are vulnerable to low earnings and where greater enforcement or redesign of minimum wage legislation might be needed.

Efficiency wages with motivated agents

Many jobs serve a social purpose beyond profit maximization, contributing positively to society. This paper uses a modified principal-agent gift-exchange game with positive externality (prosocial treatment) to study how workers' prosocial motivation interacts with the use of efficiency wages in stimulating effort. We find that prosocial motivation and efficiency wages are independent in stimulating effort: compared to a standard gift-exchange game (GE treatment), the presence of the externality shifts the agents' effort choice function upwards without affecting its slope. Thus, if principals were profit-maximizers, wage offers should be the same in both treatments. However, principals offer higher wages in the prosocial treatment. We show that this is due to principals in the GE treatment highly underestimating agents' reciprocity and thereby offering wages below the profit-maximizing level. Results from robustness-checks further suggest that our findings are unlikely to be driven by a simple efficiency effect.

Job Search, Efficiency Wages and Taxes

Job Search, Efficiency Wages and Taxes

From the Other Side: Supervisor Perspectives on Paid Versus Unpaid Sport Management Internships

Internships help position college students to succeed in the sport industry but have historically been unpaid. In response to a call from Walker et al. for more research on the impacts of unpaid internships, this study interviewed internship supervisors regarding their perspectives on unpaid internships. Data analysis was framed by institutional theory, exploitation theory, and efficiency wage theory. Results showed that supervisors use several narratives to justify unpaid internships and organizations are often slow to change without a pressing reason. While the supervisors believed that higher pay would attract better candidates and produce higher quality work, they also believed that some organizations are not capable of paying their interns and sport organizations are popular enough to attract many applicants without paying.

Productivity Effect of Efficiency Wages at Small and Medium-Sized Manufacturing Enterprises: the Case of Vietnam

Purpose: This paper aims to investigate whether efficiency wages for production workers have a positive effect on labor productivity in Vietnam's manufacturing SMEs.
 Design/methodology/approach: The research analyzes the panel data of manufacturing SMEs collected by UNU-Wider in Vietnam in 2011, 2013, and 2015.
 Findings: The panel-data analysis results for 6,953 observations show that efficiency wages increase labor productivity.
 Research limitations/implications: The scope of this study is limited to Vietnam's manufacturing SMEs. Future studies should include replicating the research model in the service sectors and other countries.
 Originality/value: Previous studies on Vietnamese manufacturing SMEs did not disclose the impact of efficiency wages on firm-level labor productivity using the SME panel datasetVietnam's. The novelty of this study is the introduction of the efficiency wages as an explanatory variable forto labor productivity. The study results shed light on organizational behavior in rational salary decisions. Many of SMEs have decided to pay lower than the average sector wage. NeverthelsessStill, the regression analysis indicates that salary growth improves per-worker productivity. This discovery allows researchers to investigate why SMEs have decided not to raise worker wages significantly while wage increases helps boost labor productivity. As a practical contribution, the study result recommends that for higher labor productivity at lower labor costs, manufacturing SMEs can raise their workers' salaries based on the average sector wage instead of benchmarking them with the average nation-level wages.

Should Apple Raise Wages? What Happens if They Immediately Raise Wages per Worker by 15%?

This paper focuses on how increasing wages affects employees and companies. Primarily, it uses an efficiency wage model to confirm that increasing wages leads to increased employee productivity and reduced laziness, as well as increased firm productivity and attracting more highly skilled employees. The paper also examines what the benefits of a 15% increase in the minimum wage are to the firm. Increasing the minimum wage can reduce employee turnover as well as the firm's production costs.

Shirking and capital accumulation under oligopolistic competition

PurposeThe purpose of the paper is to study how technology choice is affected by capital accumulation when there is unemployment and firms engage in oligopolistic competition.Design/methodology/approachIn this infinite horizon model, unemployment results from the existence of efficiency wages. Consumers choose saving optimally, and there is capital accumulation. Firms producing intermediate goods engage in oligopolistic competition and choose technologies to maximize profits. A more advanced technology has a higher fixed cost but a lower marginal cost of production.FindingsIn the steady state, it is shown that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. Interestingly, the equilibrium unemployment rate decreases with the size of the population.Originality/valueIn this model, unemployment results from the existence of efficiency wages and firms engage in oligopolistic competition. One difficulty with efficiency wage models is that saving is not allowed. However, in this model, consumers choose saving optimally, and capital accumulation is allowed. With oligopolistic competition, the authors show that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. The equilibrium unemployment rate decreases with the size of the population.

Tax enforcement and efficiency wages: Evidence from China’ Golden Tax Project III

This paper examines the impact of technology-enhanced tax enforcement on efficiency wages. Using the Golden Tax Project III (GTP III) implementation in China as a quasi-natural experiment and employing the difference-in-differences method, we show GTP III decreases efficiency wage payments, indicating employees bear part of the tax burden from intensified enforcement. The effect is more pronounced in firms with higher labor intensity, greater tax compliance, lower job mobility, higher institutional investor ratio, and lower political connectedness. We show that firms strategically apply wages to accommodate local tax enforcement to maintain their profitability.

The CEO as Monopolist

CEOs can extract extraordinarily high income from the firms they manage because of their monopoly power. This derives both from a general preference for hiring proven CEOs who have already served at other firms, as well as from the tendency of new CEOs to reorganize the firms they lead. Firms’ status quo bias unnaturally delimits the pool of CEO applicants and increases the monopoly power of incumbent CEOs. New CEOs who install their own top management teams generally reorganize the firm to optimize the application of their own abilities and those of their new team. However, CEOs can also reorganize to maximize their monopoly power. Conceptualizing CEOs as potential monopolists integrates insights from the principal/agent, upper echelon, efficiency wage, and x-inefficiency literatures. This paper develops the consequences of monopolistic CEOs who potentially receive efficiency wages that may exceed their marginal revenue product. If CEO income is sufficiently high, their labor-supply curves bend backwards, something far less likely for other employees. A backward-bending labor-supply curve can result in CEOs receiving even greater income as they deliver even lower levels of executive leadership.

Technology adoption and jobs: The effects of self-service kiosks in restaurants on labor outcomes

This study explores how technology adoption affects labor. I investigate the effect of restaurants' adoption of self-service kiosks on labor outcomes, using survey data from Korea. I find that businesses’ adoption of self-service kiosks had little impact on their number of full-time or part-time workers. However, restaurants with a self-service kiosk decreased both the wages of their part-time workers and the number of unpaid family members they employed. The results are driven by franchise restaurants. Independently owned restaurants that adopted kiosks increased the wages of their full-time workers. These findings provide support for the efficiency wage theory as well as the skill-biased technological change theory. The results suggest that when businesses adopt new technologies, these technologies do not replace unskilled labor, but rather raise the relative wages of skilled workers.

Post-Keynesian Economics: New Foundations, by Marc LavoieChapter 5: Effective Demand and Employment

ABSTRACT This article examines Chapter 5 ‘Effective Demand and Employment’ in Post-Keynesian Economics: New Foundations by Marc Lavoie. This chapter covers one of the most distinctive contributions of the post-Keynesians, and one of its most profound insights. Analysis of effective demand and employment is a crucial and distinct foundation of post-Keynesian economics. Identifying the determinants of the level of employment and output represent one of the most significant contributions of post-Keynesian analysis. This is in total contrast to mainstream theory, according to which the level of output and employment are determined in the labour market, with labour seen as just another commodity, and the wage rate playing the role of the price equating supply and demand for labour. For post-Keynesians, the main determinant of the level of output and employment is the level of effective demand rather than the wage rate. Their views on the labour markets, taking into account segmented labour markets and efficiency wages, are considered. The determinants of profits and the profit share play important roles in the determination of employment and output. It is argued that fiscal policy plays a vital role in economic stabilisation, and that the typical arguments regarding its limitations are incorrect.

Labor Productivity, Real Wages, and Employment in OECD Economies

This work investigates the relationship between labor productivity (LP), real wage (RW), and employment (EMP). The paper's main goal is to test competing theories of growth and income distribution. Standard theory predicts that RW should increase following increases in LP. Alternative theories and efficiency wage theories suggest that the distribution causes changes in LP. Theory delivers ambiguous predictions regarding the ultimate effects on EMP, which can be either negative if factor substitution prevails or positive if higher RW and LP generate additional aggregate demand and, therefore, EMP. I study a panel of 25 OECD economies by performing single and multi-equation approaches. My first key result is a positive two-way association between LP and RW, supporting the induced technical change and efficiency wages theories over the marginal productivity theory. My second relevant finding is that EMP is weakly exogenous, suggesting that OECD countries have been labor-constrained for the period under analysis.

The choice of technology in economic development

AbstractThe impact of capital accumulation on job creation is an important and interesting issue in economic development. This model provides a general‐equilibrium framework for studying technology choice with unemployment in a developing economy based on micro‐foundations. Unemployment in the urban sector results from the existence of efficiency wages. Manufacturing firms engage in oligopolistic competition and choose technologies to maximise profits. A more advanced technology uses more capital and less labour. In the steady state, an increase in the amount of capital induces firms to choose more advanced technologies and the wage rate increases. While a higher capital stock always induces firms to choose more advanced technologies, urban unemployment rate may decrease and agricultural sector employment may increase.

“Empty Plates”: Impacts of Food Prices, Inequality and Trade on Malnutrition

This paper studies the complex link between nutritional status and income by using panel data from 150 countries over the period 1960–2018 and employing a panel VAR approach under system GMM estimates. The causal link between nutrition intake and income may change from one income group to another due to different effects of similar factors. While hikes in food prices, unfair distributions of income and rising international trade flows lower nutrition intake in lower middle-income countries, the same factors lead to higher body weights in upper middle-income and high-income OECD countries. Therefore, Engel Curve and Efficiency Wage Hypotheses fail for a group of countries.

WHY DOES A RULER TOLERATE CORRUPTION AND HOW CAN CORRUPTION POSSIBLY BE ELIMINATED?

There is a fundamental conflict of interests between the ruler and most citizens in non-democracies. When the ruler maximizes his benefit from taxation, the major constraint is that citizens might make attempts to overthrow the existing regime. The continuity and stability of regime are crucially related to the degree of support to the existing political regime by the bureaucracy. In this paper, we use a simple model to argue that, when the ruler maximizes his benefit and faces exogenous restriction on wage setting, toleration of corruption is necessary to induce the required support and effort from the bureaucracy. We then relax the exogenous restriction on wages and study the case in which the ruler may eliminate corruption by setting efficiency wage. We also explore the possibility that the ruler may use an audit device to check corruption.

Determinants of Labor Demand in Somalia

Purpose: The purpose of this study was to examine the determinants of labor demand in Somalia.
 Methodology: The ordinary least square method (regression analysis) was utilized in the analysis of the data. Regression analysis is a tool commonly utilized in the determining of the existence of a relationship between variables; using historical data. The simple regression function employed consisted of one dependent variable and three independent variables. The dependent variable was employment, and the independent variables were gross domestic product, export and investment. In addition, descriptive statistics were utilized in the analysis of the data. Graphs were also used in the study to represent the data. The study used secondary data from the World Bank, IMF, and SESRIC in the rage of 45 years from 1970 to 2015. The study used the efficiency wage model to develop the determinants of labor demand.
 Findings: The study found that there is a positive relationship between gross domestic product and employment of Somalia. That means, if gross domestic product increase employment will also increase. The study also found that there was a positive and statically significant between investment and employment in Somalia, and that there was a positive and statically insignificant between export and and employment in Somalia.
 Recommendation: This study recommends that the policy should make policies that attract foreigners and Somali people living in other countries to invest Somalia, because investment plays an important role in determining the level of employment. To achieve these policies, first, the government should focus on the ensuring the security of the country because the main challenge affecting foreigners is insecurity.