|This centre is a member of The LSE Research Laboratory [RLAB]: CASE | CEE | CEP | SERC | STICERD||Cookies?|
Paper No' DEDPS 10: | Full paper
Save Reference as: BibTeX File | EndNote Import File
Keywords: Efficiency wage; near-rationality; panel data; India.
Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: Development Economics
Share this page: Google Bookmarks | Facebook | Twitter
Abstract:This paper investigates the efficiency wage hypothesis and derives a tractable expression for the profit loss incurred by deviations from the efficiency wage. The extent of the wage deviation can be inferred from production function parameters. The resulting profit loss shown to depend upon the curvature of th effort function and the employment and wage elasticities of output. If the profit loss is small then near rationality may be claimed even if the hypothesis of rationality is statistically rejected. An application to Indian manufacturing is presented, which suggests that rationality cannot be rejected and that the profit function is remarkably flat aroung the optimum. This is consistent with positive effort returns to increasing the wage beyond its efficient level.
Copyright © RLAB & LSE 2003 - 2015 | LSE, Houghton Street, London WC2A 2AE | Contact: RLAB | Site updated 02 February 2015