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Are wages too low? Empirical implications of efficiency wage models.
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  • Thomas J. Carter, University of South Florida St. Petersburg
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Thomas J. Carter

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Firms may pay efficiency wages to enhance productivity. The conventional presumption is that efficiency wages are inefficiently high because they lead to unemployment that is also inefficiently high; government policies that lower wages raise output. Using a simple and general efficiency wage model, this paper finds a necessary and sufficient condition for the opposite conclusion. If the condition holds, wages are inefficiently low, leading to productivity that is also inefficiently low. It is the high-wage policies that raise output, even if they also lower employment. Published empirical results support the condition. No evidence is found for the conventional presumption.

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Creative Commons Attribution-Noncommercial-No Derivative Works 4.0
Citation Information
Carter, T. J. (1999). Are wages too low? Empirical implications of efficiency wage models. Southern Economic Journal, 65(3), 594-602. doi:10.2307/1060818