By efficiency wages one understands wages, which lie above the equilibrium level and which an employer pays voluntarily in the political economy, in order to increase the productivity.

There are several reasons, why employers efficiency wages should pay:

• Higher wages reduce the incentive, which a job rotation for the employee has. Job rotation increases however the costs (so-called fluctuation costs) of the employer (training of a successor,"Â…), is not desirable therefore.
• Higher wages increase the state of health of the employees, since they can afford high-quality food and a better health care. Healthy employees increase the productivity.
• Higher wages increase the motivation and increase thereby the productivity likewise.
• Higher wages have an attraction for highly-qualified employees.

Like minimum wages efficiency wages provide however by the deviation from the equilibrium level theoretically for a rise of unemployment.

Literature

• Franz, W., (2005): Springer, 5. Edition, Berlin
• Shapiro, C. and J.E. Stiglitz, (1984): Equilibrium Unemployment as A Worker Disciplin DEVICE, American Economic Review, volume 74, P. 433-444.

Articles in category "Efficiency wages"

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