DO FIRMS PAY EFFICIENCY WAGES - EVIDENCE WITH DATA AT THE FIRM LEVEL

This study tests the efficiency wage hypothesis estimating wage and qu it equations with data from the Employment Opportunity Pilot Project s urvey of firms. An efficiency wage model is derived that predicts effe cts of turnover costs and unemployment on wages as functions of first and second derivatives from the quit equation. The model is tested by examining the relationships between the coefficients in the wage and q uit equations; the results are generally favorable to efficiency wage theory. Other important findings are that firm characteristics raising workers' productivity tend to raise wages and that a rise in turnover costs reduces quits.