Chapter 15 Wage Differentials in Experimental Efficiency Wage Markets

This chapter reports on two experiments that were designed to test whether efficiency wage theories receive support in the laboratory. The idea is that theories which have no explanatory power even under the controlled circumstances of the laboratory, will not apply to the much more complicated field. The investigated efficiency wage theories the fair wage-effort hypothesis and the shirking version are often invoked to explain certain labor market phenomena, as involuntary unemployment and (non-compensating) wage differentials. Both variants of efficiency wage theories considered here survived the laboratory tests and may, therefore, be considered as possible explanations for field observations. In this sense, the reported experimental results can be viewed as complementary to field work in this area.