Evidence on Productivity Effects

We have little direct evidence on the efficiency wage hypothesis, but there is a good deal of evidence on related issues.

Profit sharing is a form of labor compensation in which the employees get higher wages when company profits are higher. The idea is that profit sharing increases the incentive to work harder and "work smarter," and thus increases profits. On the whole, the studies confirm this, showing that there is at least some scope for increasing profits through the productivity effect.
Studies of unionization provide evidence that, on the whole, unionized companies have higher labor productivity than non-unionized companies (except, of course, when the union is on strike!) This is a surprising result, and there has been some controversy about how to explain it. One possible explanation is that the higher productivity comes from the productivity effect of better wages (and working conditions) the unions were able to obtain. The productivity effect does not seem to increase profits in this case, however. Apparently the increase in productivity is just about balanced out by the increase in wages.
A cooperative enterprise is an enterprise in which the directors and officers are elected directly by the employees. The employees may be the owners of the enterprise or the enterprise may be owned by some nonprofit, public, or philanthropic agency. Such enterprises have existed in various parts of the world (including the United States, Britain, and other "capitalist" countries) for over 150 years. Studies of cooperative enterprises show that they generally do better than investor-controlled or government enterprises in labor productivity, although they can have difficulty raising investment capital. Presumably they are benefiting from a large productivity effect, although money wages may not be the main reason for it -- because of their difficulties raising investment capital, their wages are not necessarily high.
Many other enterprises are more or less compromises between investor-controlled and cooperative forms. For example, the employees may elect a certain proportion of the Board of Directors. This is called Codetermination. In Germany all of the large corporations are required to have half of the members of their Boards of Directors elected by the employees. This is called Codetermination with Parity. International comparisons are difficult, but the German economy has certainly been a strong performer, with high labor productivity, very high wages, and a very strong export balance. Comparisons of different enterprises within countries are easier. Studies of this kind have compared enterprises that come nearer the cooperative end of the spectrum with other enterprises that are nearer the investor-controlled end of the spectrum and, allowing for some differences in circumstances, the more nearly cooperative enterprises have had higher labor productivity on the average.

Thus, there is some evidence that productivity effects can be important, but the evidence also suggests that the organization of the enterprise is at least as important as the money wage level in creating productivity effects.