Question

Discuss the differences between two theories of wage stickiness: the efficiency wage theory and the misperceptions theory. (maybe try to include some graph if there should be) - College level answer would be better

Answer 1

The thought of the efficiency wage theory is that growing wages can result in expanded labour productiveness.

Therefore if organizations broaden wages some or all the bigger wage costs can be recouped through extended employees retention and higher labour productivity.

In idea, greater wages could motive accelerated labour productiveness (MRP). On this case, the wage increases can pay for themselves.

Explanations for effectivity wage conception

fear of shedding jobs Shirking mode. The argument is that if employees are paid a bigger wage, they've extra to lose from being made redundant. Accordingly, if they have a job with a wage significantly higher than benefits or substitute jobs, they are going to have larger motivation to galvanize their boss and preserve it. Shapiro and Stiglitz posited that employees with a higher wage will work at an effort level which entails no shirking. This wage is above market clearing phases.

Loyalty. Secondly, if employees acquire a better pay, they may simply believe more loyalty in the direction of the manufacturer and be inclined to work more difficult and with more selection. In contrast, in the event that they believe they're being exploited by means of a monopsonist corporation, then they'll do the minimal amount of labor to get via, but attempt to take extra breaks and not work as difficult.

Labour market reward trade G. Akerlof (1982) noticed the labour market has a reward trad where good labour relations trusted goodwill. Companies could pay wages above market clearing stages, and in return, workers would take on extra responsibility and initiative.

Cut down expenditures of supervision. JB Rebitzer (1995). Rebitzer famous that cut back wages were related to larger stages of supervision. Employees receiving bigger wages have been more stimulated and consequently needed much less managerial supervision.

Appeal to higher first-rate labour. If a company pays above the market clearing stage, it's going to attract a greater satisfactory worker who will think they can get the quite higher-paid job.

Dietary theories. In establishing economies at very low charges of pay, increasing wages can allow a reduction in absolute poverty higher health, and diet result in higher first-class labour.

Back within the sixties we learned the Phillips curve that says you can stimulate the economy by means of printing money. The phenomenon was explained by using the misperception conception - individuals consider the expand in costs as a result of printing money is real and develop deliver in response.

After making an attempt this out once or twice the trick stopped working - individuals expecting inflation and you have to print cash just to preserve folks from mistakenly pondering actual costs are falling. Thats when we acquired intorational expectation - the awareness that persons usually are not stupid and can construct your loopy cash printing habits into their predictions for the long run.