Relative Deprivation, Efficiency Wages, and Labor Productivity in Taiwanese Manufacturing Industries

We investigate the effects of relative deprivation and efficiency wages on labor productivity in manufacturing industries in Taiwan. Using data from six different years in the period from 1979 to 1995, our results indicate that – contrary to the usual assumption made by many labor economists – efficiency wages do not have a net positive effect on labor productivity. The findings do indicate, however, a substantial negative effect of relative deprivation. In particular, labor productivity in Taiwanese manufacturing industries is lower to the extent that their workers are paid below the national average given their human capital and demographic characteristics. These results suggest that the wage structure of an industry does have an important effect on its labor productivity, but understanding this issue more fully may require that researchers focus more on relative deprivation.