Testing efficiency wage theory: the views of actual market participants

Empirical support for the competing theories of efficiency wages has been sought by conducting surveys of firms in the U.K., the U.S.A., and Sweden. This survey of Australian firms found qualified support for the shirking model of efficiency wages proposed by Shapiro and Stiglitz (1984). While little support was found for the adverse selection model strong support was found for the turnover model, consistent with the surveys of Blinder and Choi (1990) and Bewley (1995,1999). All the surveys find pervasive support for the notion of fairness as an explanation for wage rigidity endorsing efficiency wage theory as developed by Akeriof(1982, 1984) and Akerlof and Yellen (1988, 1990).