Abstract
This study reports a meta-analysis of 75 estimates of the efficiency-wage effect. It reveals a strong efficiency-wage effect that depends upon whether researchers control for potential simultaneity between wages and productivity. Studies that control for simultaneity tend to report stronger effects. Clear evidence of publication selection is also found. E24, J30.
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Notes
Nor was any study omitted due to language, and foreign language studies were coded and included in our database. We were unable to acquire only two papers out of over 100 that may or may not have contained empirical estimates. Both of these papers were published in very narrowly circulating journals unavailable in the US, one in the Netherlands and the other in Turkey. We are satisfied that our search strategy was comprehensive. One should make every effort to include all studies, and we did. Several unpublished studies are among these 14 included studies. By beginning with lists that were much larger than the actual population of studies reporting empirical estimates of the efficiency-wage hypothesis, we minimize the probability of missing a relevant study.
We choose the wage-elasticity of production as our measure of the efficiency-wage effect solely to maximize both the number of relevant studies included and the number of comparable estimates available. Approximately an equal number of studies tested or estimated some entirely different aspect of the efficiency-wage hypothesis. However, these other empirical measures were quite idiosyncratic, and none were commensurable with more than one or two other studies. Other dimensions of EWH investigated in this literature include: wage and market share, wage differentials measured in several incompatible ways, days taken off when not sick, calorie intake and productivity, wage and conflict, work effort, wage and reservation wage, employer size, pricing, job autonomy, wages and tax evasion, supervision and wages, worker turnover, and the gender wage gap. We see no reasonable way to pool these diverse dimensions of the efficiency-wage hypothesis without threatening the validity of the meta-analysis on the larger and more homogeneous set of wage elasticities of production.
The difference between these estimates of average wage elasticity is due to publication selection bias (discussed below).
Taking this robustness check to an extreme, we re-ran our simple MRA model (column 1 Table 1) after discarding all estimates from either unpublished studies or those which use data from developing nations. Doing so gives identical results about the existence and magnitude of the efficiency-wage elasticity and the presence of publication selection. Similarly, in a multivariate context (columns 4–6 Table 1), accounting for whether the data comes from a developed country has no significant effect and drops out of the estimated MRA model. Our findings concerning the existence and magnitude of the corrected efficiency-wage elasticity and the presence of publication selection bias are extremely robust.
The only difference is that some of the other variables become statistically insignificant, especially when robust regressions are employed.
Because the dependent variable in all of these MRA models is the observed t-value, R2 must be re-calculated to reflect the MRA’s explanatory power for reported elasticities, rather than their t-values.
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Krassoi Peach, E., Stanley, T.D. Efficiency Wages, Productivity and Simultaneity: A Meta-Regression Analysis. J Labor Res 30, 262–268 (2009). https://doi.org/10.1007/s12122-009-9066-5
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DOI: https://doi.org/10.1007/s12122-009-9066-5