Swedish evidence on the efficiency wage hypothesis

Abstract

Abstract This paper investigates if Swedish workers behave according to the predictions of the basic efficiency wage model. The results seem to imply that the ‘stick’ is more important than the ‘carrot’: On the one hand, there are no significant relationships between effort and different specifications of the relative wage. Moreover, the estimated relationship is sensitive to model specification. On the other hand, the results suggest that workers increase their effort if outside labor market prospects are dim and if they fear that they will lose their jobs within a year.