Luke Haywood, Jean-Marc Robin
Efficiency wage models argue that by increasing workers' utility, firms can enhance their productivity. Providing better working conditions instead of higher wages may be an alternative. In a world of perfect competition for every good, there is a market for non-material job amenities in which workers "willingness to pay" for these goods implies workers accept certain wage differentials. As a result, jobs with better working conditions should have lower wages, generating "compensating differentials". An underlying assumption in these models is that working conditions have no impact on worker productivity or are costly to the firm. The case of productive working conditions is considered here in a labour market with search frictions and different levels of worker ability. At equilibrium the relationship between wages and the quality of working conditions depends on workers' preference for good working conditions and the level of working conditions. Compensating differentials may not be evident despite the fact that workers are willing to substitute better working conditions for lower pay. A method of empirical estimation is proposed based on subjective evaluation of working conditions, wage and transition data. Empirical estimation using simulation is work in progress.
Themen: Arbeit und Beschäftigung
Keywords: Working Conditions, Compensating Differentials, Job Search
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