International Advances in Economic Research

, Volume 8, Issue 4, pp 314–323 | Cite as

Disentangling the wage-productivity relationship: Evidence from select OECD member countries

  • Meghan Millea


Conventional theory proposes that firms reward productivity improvements with higher wages. Conversely, efficiency wage theory suggests that wages can induce greater productivity. This paper applies a statistical technique that disentangles the potential bidirectional feedback between wages and productivity. Wage strategies in six industrialized countries with various labor market institutions are examined. Conventional and efficiency wage practices vary systematically across the industrialized countries; these variations are consistent with the expected effects of labor market institutions.


Economic Growth Labor Market Statistical Technique International Economic Industrialize Country 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Campbell, Carl M. III. “Sectoral Wage Rigidity in the Canadian and French Economies,”European Economic Review, 33, 9, December 1989, pp. 1727–49.CrossRefGoogle Scholar
  2. ——. “Do Firms Pay Efficiency Wages? Evidence with Data at the Firm Level,”Journal of Labor Economics, 11, July 1993, pp. 442–70.Google Scholar
  3. ——. “Wage Change and the Quit Behavior of Workers: Implications of Efficiency Wage Theory,”Southern Economic Journal, 61, 1, July 1994, pp. 133–48.Google Scholar
  4. Cappelli, Peter; Chauvin, Keith. “An Interplant Test of the Efficiency Wage Hypothesis,”Quarterly Journal of Economics, 106, 3, August 1991, pp. 769–87.Google Scholar
  5. Carmichael, Lorne H. “Efficiency Wage Models of Unemployment: One View,”Economic Inquiry, 28, 2, April 1990, pp. 269–95.Google Scholar
  6. Cushing, Matthew J.; McGarvey, Mary G. “Feedback between Wholesale and Consumer Price Inflation: A Reexamination of the Evidence,”Southern Economic Journal, 56, April 1990, pp. 1059–72.Google Scholar
  7. Dickey, D. A.; Fuller, W. A. “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root,”Econometrica, 49, June 1981, pp. 1057–72.Google Scholar
  8. Drago, Robert. “Incentives, Pay and Performance: A Study of Australian Employees,”Applied Economics, 23, September 1991, pp. 285–92.Google Scholar
  9. Drago, Robert; Heywood, John S. “Is Worker Behaviour Consistent with Efficiency Wages?,”Swedish Journal of Political Economy, 39 May 1992, pp. 141–53.Google Scholar
  10. Fuess, Scott; Millea, Meghan. “Do Employers Pay Efficiency Wages? Evidence from Japan,”Journal of Labor Research, 23, Spring, 2002 pp. 279–92.Google Scholar
  11. Geweke, John. “Measurement of Linear Dependence and Feedback Between Multiple Time Series,”Journal of the American Statistical Association, 77, June 1982, pp. 304–13.Google Scholar
  12. ——. “Measurement of Conditional Linear Dependence and Feedback Between Time Series,”Journal of the American Statistical Association, 79, December 1984, pp. 907–15.Google Scholar
  13. Granger, C. W. J. “Investigating Causal Relations by Econometric Models and Cross-Spectral Methods,”Econometrica, 37, July 1969, pp. 424–38.Google Scholar
  14. Judge, George G.; Hill, R. Carter; Griffiths, William E.; Lütkepohl, Helmut; Lee, Tsoung-Chao.Introduction to Econometrics, Second edition, New York: Wiley, 1988.Google Scholar
  15. Layard, Richard; Nickell, Stephen; Jackman, Richard.The Unemployment Crisis, Oxford University Press, 1994.Google Scholar
  16. Leonard, Jonathan S. “Carrots and Sticks: Pay, Supervision, and Turnover,”Journal of Labor Economics, 5, 4, Part 2, October 1987, pp. S136–52.CrossRefGoogle Scholar
  17. Levine, David I. “Can Wage Increases Pay for Themselves? Tests with a Production Function,”The Economic Journal, 102, September 1992, pp. 1102–115.Google Scholar
  18. ——. “What Do Wages Buy?”Administrative Science Quarterly, 38, 3 September 1994, pp. 462–87.Google Scholar
  19. Millea, Meghan. “A Direct Test of Efficiency Wage Theory: Evidence from the U.S. and Other OECD Countries,” Ph.D. dissertation, University of Nebraska-Lincoln, 1998.Google Scholar
  20. Millea, Meghan; Fuess, Scott M. Jr. “Disentangling the Wage-Productivity Relationship: Do U.S. Manufacturers Pay Efficiency Wages?,” Working paper, 2000.Google Scholar
  21. Raff, Daniel M. G.; Summers, Lawrence H. “Did Henry Ford Pay Efficiency Wages?,”Journal of Labor Economics, 5, October 1987, pp. S57-S87.CrossRefGoogle Scholar
  22. Salop, Steven. “A Model of the Natural Rate of Unemployment,”American Economic Review, 69, March 1979, pp. 117–25.Google Scholar
  23. Shapiro, Carl; Stiglitz, Joseph. “Equilibrium Unemployment as a Worker Discipline Device,”American Economic Review, 74, June 1984, pp. 433–44.Google Scholar
  24. Wadhwani, Sushil B.; Wall, Martin. “A Direct Test of the Efficiency Wage Model Using UK Micro-Data,”Oxford Economics Papers, 43, October 1991, pp. 529–48.Google Scholar

Copyright information

© International Atlantic Economic Society 2002

Authors and Affiliations

  • Meghan Millea
    • 1
  1. 1.Mississippi State UniversityU.S.A.

Personalised recommendations