Frontiers of efficiency wages: unconventional wisdom?

Abstract

Purpose The purpose of this paper is to trace the historical foundation of the efficiency wage theory and examine its conceptual framework against other wage theories, in relation to conventional practices in human resource management. Design/methodology/approach Following a description of various wage theories, a conceptual analysis maps the evolutionary process of efficiency wage theory. Findings The concept of efficiency being applied to wages appears to evolve from Smith. The difference between the classical and the institutionalists’ perspectives appears to be the meaning ascribed to efficiency. Clark seemed to be the first one to examine the relationship between labor and productivity. Webb expanded the meaning of efficiency and demonstrated the relationship with productivity. Institutional and behavioral theorists further developed and advocated for efficiency wages. A synthesis of recent empirical studies provides support for the theory, which challenges conventional human resource management wage practices. Practical implications The findings solidify the usefulness of efficiency wage theory not only as a motivational management tool but also as a source for social and economic well-being. Originality/value The contribution of this historical account is that it synthesizes the root and development of efficiency wages theory. It also highlights the social context of the theory and provides an interface between economic and management perspectives.