Efficiency wages, deferred payments and direct incentives in agriculture

Empirical evidence from agricultural labor markets is consistent with efficiency-wage theory and inconsistent with several alternative explanations. According to this theory, the higher wage or deferred payment (benefits) that direct-hire growers pay relative to that of farm labor contractors is an efficiency wage. Growers use this extra compensation to lower their monitoring expenses and reduce shirking by workers. Key words: deferred payments, efficiency wage, incentives. Employers may pay an efficiency wage—an unusually high wage—or use deferred benefit or wage payments to reduce the costs of mon-itoring workers (e.g., Lazear, Yellen, Shapiro and Stiglitz, and Newbery and Stiglitz). A high wage or deferred payment serves the same function as an employment bond, making the threat of losing a job greater so that less moni-toring is required to prevent shirking or other bad behavior. We examine whether the basic predictions of this model are consistent with the data from a randomized national survey of agricultural workers. If the efficiency-wage theory is correct, it may explain a number of puzzles about why the labor management and compensation prac-tices in agriculture differ from those in other labor markets. For example, it may explain why some employers pay unusually high wages and provide benefits, while others pay low wages without benefits. Efficiency wages also have strong implications for the effects of minimum-wage laws. Rebitzer and Taylor show theoret-ically that minimum-wage laws can increase employment in a market in which efficiency wages are used for much the same reason as in a monopsony market. Enrico Moretti is an assistant professor at UCLA; Jeffrey M