Test of Efficiency- Wage Model for Iran s Economy

According to efficiency- wage model, the firms instead of paying the market clearing wages will pay the real wages which enhance the productivity of their workers. In this approach wage is an independent variable which will influence the performance of the firms. On the other hand, one can say that when productivity and efficiency increase the firms will be induced to pay higher wages to their workers. In this study we have investigated the relationship between the wages and the productivity for the period 1984-2004. The results show that the causality is from wages to efficiency and productivity. Among the variables which are expected to have influence on productivity and efficiency, oil revenue is the dominant factor. Real wages also had a positive and significant effect which is consistent with efficiency- wage theory; even though its effect is very small.