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Efficiency Wages Reconsidered: Theory and Evidence

  • Kevin M. Murphy
  • Robert H. Topel

Abstract

Differences in wages for observationally similar persons have interested economists at least since Smith, who devoted a chapter (I.X) to the problem. Smith identified five sources of wage inequality, of which the fourth is the ‘small or great trust which must be reposed in the workmen’. He argued that workers in jobs requiring greater trust (goldsmiths and jewellers were his examples) receive higher wages than ‘those of other workmen, not only of equal, but of much superior ingenuity’. Smith clearly envisioned that a type of agency problem was solved by paying higher wages, for he notes that this source of wage inequality is internalized ‘when a person employs his own stock in trade’.

Keywords

High Wage Wage Differential Wage Premium Wage Equation Wage Change 
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.

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Copyright information

© Yoram Weiss and Gideon Fishelson 1990

Authors and Affiliations

  • Kevin M. Murphy
  • Robert H. Topel

There are no affiliations available

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