Work incentive and productivity in Spain

Pisa, M. Isabel and Sánchez, Rosario (2013): Work incentive and productivity in Spain.

Abstract

Work incentives are closely related to production performance. This paper presents evidence that the value added of a firm increases when relative labor costs rise, or the level of unemployment increases. Both circumstances imply evidence in favor of the efficiency wage model. This theory is consistent with the views of many managers and personal administrators, who tend to ascribe primary importance to wage setting as an incentive to increase effort. We use a micro panel data set of Spanish manufacturing firms, during the period 2004–2009, to simultaneously estimate a stochastic frontier of a firm’s value added and the inefficiency determinants. The data source is published in the Spanish Industrial Survey on Business Strategies (Encuesta sobre Estrategias Empresariales, ESEE), collected by the Fundación SEPI.

• Item Type: MPRA Paper
• Language: English
• Keywords: efficiency, value added, labor economic, industrial relations.
• Subjects: D - Microeconomics > D2 - Production and Organizations; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J23 - Labor Demand; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General

References

Aigner, D., Lovell, K.C.A. and Schmidt, P. (1977), “Formulation and estimation of stochastic frontier production function models”, Journal of Econometrics, Vol. 6, pp. 21-37

Akerlof, G.A. (1982), "Labor Contracts as Partial Gift Exchange", Quarterly Journal of Economics, Vol. 97, pp. 543-596.

Akerlof, G. A. and Yellen (1986), Efficiency wage models of the labor market, Cambridge; Cambridge University Press.

Delgado, M., Fariñas, J. C., & Ruano, S. (2002), “Firms productivity and export markets: a non-parametric approach”, Journal of International Economics, Vol.57, pp. 397–422.

Díaz-Mayans, M. A. and Sánchez R., (2004), “Temporary employment and technical efficiency in Spain”, International Journal of Manpower, Vol. 25 (2), pp.181-194

Díaz-Mayans, M. A. and Sánchez R., (2008), “Firm size and productivity in Spain: a stochastic frontier analysis”. Small Business Economics, Vol.30, pp. 315-323.

Díaz-Mayans, M. A. and Sánchez R., (2012), “Are large innovative firms more efficient?” International Conference on Economic Modelling, Seville, Spain. MPRA Paper no. 44592 February 2013. http://mpra.ub.uni-muenchen.de/44592/

Fariñas, J.C. and Jaumandreu, J., (2004), “Diez años de encuesta sobre estrategias empresariales (ESEE)”, Economía Industrial, Vol. 329, pp. 29-42.

Fariñas, J. C., & Ruano, S. (2004). “The dynamics of productivity: A decomposition approach using distribution functions”, Small Business Economics, Vol.22, pp.237–251.

Huergo, E. & Jaumandreu, J. (2004), “Firms’ age, process innovation and productivity growth”, Journal of Industrial Organization, Vol. 22, pp.541-559.

Jondrow, J., Lovell, K., Materov, I.S. and Schmidt, P., (1982), “On the estimation of technical inefficiency in the stochastic frontier production function model”. Journal of Econometrics, Vol. 19, pp.233-238.

Krueger, A. and Summers, L. H. (1986), “Efficiency wages and inter-industry wage structure”, Econometrica , Vol.56, pp. 259- 94.

Kumbhakar, S.C., Ortega, R., Potters, L., Vivarelli, M. Voigt (2011), “Corporate R&D and firm efficiency: evidence from Europe’s top R&D investors”. Journal of Productivity Analysis, Vol. 37, pp. 125-140.

Martin-Marcos, A and Suárez-Galvez, C. (2000), “Technical efficiency of Spanish manufacturing firms: a panel data approach”, Applied Economics, Vol. 32, pp.1249-1258.

Murphy, K. and Topel, R. (1987) Unemployment Risk and Earnings: Testing for Equalising Wage Differences in the Labour Market, Basil Blackwell, New York.

Sanchez, R. and Toharia, L. (2000), “Temporary workers and productivity: the case of Spain”, Applied Economics, Vol. 32, pp. 583-91.

Shapiro, C. and Stiglitz, J. (1984), "Equilibrium Unemployment as a Worker Discipline Device", American Economic Review, Vol. 74, pp. 433-444.

Stiglitz, J.E. (1987), “ The causes and consequences of the dependence of quality on price”, Journal of Economic Literature, pp: 1-48.

Wang, H.J. (2002), “Heterocedasticity and non-monotonic efficiency effects of a stochastic frontier model”, Journal of Productivity Analysis, Vol. 18 (3), pp. 241-53.