Motivation and Markets

W. Bentley MacLeod, James M. Malcomson

Research output: Contribution to journalArticlepeer-review

130 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)388-411
Number of pages24
JournalAmerican Economic Review
Volume88
Issue number3
StatePublished - Jun 1998
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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