EFFICIENCY WAGES AND EMPLOYMENT RENTS - THE EMPLOYER-SIZE WAGE EFFECTIN THE JOB MARKET FOR LAWYERS

The ''efficiency wage hypothesis'' offers an explanation for employmen t rents. According to this hypothesis, firms pay wages above the oppor tunity cost of labor to elicit productivity or quality-enhancing behav iors from employees. Firms pursue this strategy when alternative incen tive schemes are unavailable or too costly. Thus, firms will nor pay p remium wages when employees post sufficiently large performance bonds. This article examines employment rents in a setting where employees p ost sizable performance bonds-large law firms. Contrary to the efficie ncy wage hypothesis, we find that associates in these large firms post substantial performance bonds while also receiving substantial, ex an te rents.