Motivation and Markets

USC Law School Olin Working Paper No. 97-23

Posted: 16 May 1998

See all articles by W. Bentley MacLeod

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

James M. Malcomson

University of Oxford - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: 1997

Abstract

Many workers receive pay based on subjectively assessed performance, yet the shirking model of efficiency wages excludes it. This paper incorporates such pay, with the following results. Performance pay is more efficient than efficiency wages when the costs of having a job vacant are low and qualified workers in short supply. More capital-intensive industries pay more than less capital-intensive industries, as observed in studies of interindustry wages differentials. Sustaining an efficient outcome requires a social convention similar to the notion of a fair wage. The model also makes predictions about the relationship between turnover, wages, growth and unemployment.

JEL Classification: J31, J33

Suggested Citation

MacLeod, William Bentley and Malcomson, James M., Motivation and Markets (1997). USC Law School Olin Working Paper No. 97-23. Available at SSRN: https://ssrn.com/abstract=88348

William Bentley MacLeod (Contact Author)

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James M. Malcomson

University of Oxford - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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