the form of meals was seen by the farmers to be a matter of convenience rather than a matter of workers' performance. Bliss and Stem (1978) also found large regional variations in wage rates for similar types of labour. Labour transactions were conducted on a day to day basis rather than by long term contract. They concluded that the efficiency wage theory does not have strong relevance to rural labour markets of India.
In contrast, Bliss and Stem (1978) cited evidence from a plantation economy where some bonded labourers were employed on a permanent basis. The finding that the bonded workers had better nutritional standards than free labourers suggested that an efficiency wage process was operating. This also suggests that the institutional factors in a free labour market impede wage determination on the basis of efficiency wages.
Rodgers (1975) applied some of the predictions to data from a number of villages in India. The wage rates did not vary to any significant extent between the peak and the slack seasons in five out of the seven villages and most wages contained provisions for meals. Rodgers accordingly suggested that wages were being determined by nutritional requirements. In these five villages, a high proportion of labourers were tied to employers through long term contracts. This was taken to be another indication of the relevance of efficiency wage theories.
Rodger's conclusions however, have been criticised by Bardhan (1977) in a review of the wage and employment situation in India. Bardhan pointed out that the five villages in which Rodgers found wage stability were in areas with high cropping intensity, with most land being triple cropped. Multiple cropping implied stable labour demand, resulting in attempts at labour tying and some seasonal stability in wages. Rodger's observation that in one of the villages the wage rate showed a positive variation with a rise in the dependency ratio is not an adequate basis for concluding that the efficiency wage phenomenon works. Thus on the whole.
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Rodger's conclusion that wages are being determined on the basis of efficiency wage theory is based on very weak empirical evidence.
Behrman and Deolalikar (1986) attempted a direct test of the applicability of efficiency wage theory by examining the effect of weight-for-height and calorie intake of workers on their wage rates. They concluded that the theory was relevant for male workers because weight for height had a significant positive impact. Nonetheless, the basis of this conclusion is rather weak as the coefficient of calorie intake was negative (though not significant). The regression coefficients were not significant for the sample of female workers. The authors are of the view that the efficiency considerations do not work for women because they do not perform physically demanding tasks. However, among the male workers only a few operations are intensive of physical effort and some of the operations performed by women are physically demanding.
Palanpur, the village surveyed by Bliss and Stem (1982) in 1974-75, was surveyed by Dreze et al. in 1984 to test the applicability of the various theories of wage determination (Dreze et al. 1986). Efficiency wages were not found to operate. This conforms to the results found in the earlier study by Bliss and Stem (1982). Dreze et al. (1986) used additional hindsight from the efficiency wage theory to test its applicability. These theories imply that resistance to wage cuts will come from the employers' side. This was not found to be tme in Palanpur village.
Rosenzweig (1988) maintains that efficiency wages would imply that the ratio of male to female wage rates should exhibit stability across areas. The consumption- productivity relationships for men and women are expected to have the same ratio in different regions of a country. Data from different regions of India did not show such stability, indicating that efficiency wage theory was not applicable in those areas.
Strauss (1986) looked for direct evidence of wage-productivity relationships in Sierra Leone and found that such relationships existed and were significant. Despite
this evidence, he found wages to be unrelated to the caloric demands of the tasks performed. This might have been due to the lack of perception by the employers as well as to income-sharing by household members.
The Cain and Mozumdar (1980) findings refute the application of efficiency based subsistence wage theory to a village of Bangladesh. They found that the dependency ratio and landownership had a negative (insignificant) influence on the wage rate. In an efficiency wage framework these would be expected to have a significant positive influence.
Ahmed (1981) analysed whether the predictions of the efficiency wage theory held for Bangladesh. He presented evidence for Bangladesh as a whole to demonstrate that real wages showed a declining trend over 25 years and real earnings were unstable whereas the dependency ratio was fixed. In one village he found that wages were not seasonally stable and the incidence of labour tying was low. Only 16 per cent of the wage labourers had long term contracts. An association between the dependency ratio and the wage rate was lacking. This evidence stands in contrast to the predictions of efficiency wage theory. Table 4.2 gives a summary of the results of the major empirical studies of subsistence wage theory.
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Table 4.2 A summary of studies of the empirical application of subsistence wage theory
Predictions of the theory
Resuhs of studies by
Dreze Rodgers Bliss
etal. (1975) and Stem
(1987) (1982)
Ahmed Cain and (1981) Mozumdar
(1980) Seasonal wage stability
Temporal wage stability Provision of meals as wage
Prevalence of long No term contracts
Labour tying
Wage related positively No with dependency
Wage related negatively with landownership
Wage reduction resisted No by employers Yes Yes Yes Yes Yes Yes No Yes No No No No No No No Conclusion on the applicability No Yes No No No
4.3 Other theories of wage determination.
Recruitment cost and wage determination
Bardhan (1979), in an attempt to explain both interpersonal and interregional variations in wage rates and unemployment, suggested a recruitment cost based explanation of wage variations. The theory attempts to explain wage variations resulting from variations in personal characteristics even in the presence of unemployment. Such an explanation is based on the association of recruitment cost of a worker with his/her personal characteristics.
Recruitment cost arises from the uncertainty of obtaining enough workers at peak work times. Bardhan assumes a monopsonistic situation. As a result of some assumptions related to the behaviour of the recruitment cost phenomenon and the relationship between recruitment costs and the unemployment rate, he arrives at the following conclusions: wages are positively related to productivity enhancing factors and negatively related to recruitment costs per worker. The unemployment faced by a worker is positively related to the recruitment cost. These results conform with the common sense implications of the influence of these phenomena.
Bardhan (1979) considers the impact of the dependency ratio, gender and landownership of a worker on his/her wage rate through their influence on recruitment cost. For example, a high dependency ratio lowers the recruitment cost as the worker is prepared to take up employment in any situation and thus would obtain a higher wage rate. Landownership creates the possibility of self employment and makes the labour supply less certain, thus raising the recruitment cost and lowering the wage rate. Women have a higher recruitment cost because of their family responsibilities and are thus paid lower wage rates than men. But many of these workers' characteristics may be given alternative interpretations. For example, gender differences in the wage rate may be explained in terms of market