Do higher wages motivate workers to work harder? A recent experiment conducted on Swiss newspaper distributors suggests the answer's yes, but only partially so:
Workers who perceive being underpaid at the base wage increase their performance if the hourly wage increases, while those who feel adequately paid or overpaid at the base wage do not change their performance.
This suggests that people are motivated not so much by the cold cash nexus as by feelings of reciprocal fairness*.
You might interpret this as an argument for a living wage (pdf): if it causes poorly-paid workers to raise their productivity, it might pay for itself. I'm not sure, for two reasons.
First, I'm not sure how great is the overlap between actual pay and the feeling of being unfairly paid. Anyone who's been in an investment bank at bonus time will know that there's a difference between the two. It could be that the just world illusion mitigates self-serving biases, causing some low-paid workers not to feel unjustly treated.At the last general election, 31% of people in the DE social class voted Tory.
Secondly, even if a living wage does raise productivity, it could still destroy jobs. If it causes a chambermaid to clean an extra room per shift, the living wage might merely allow hotels to employ fewer chambermaids.
Efficiency wage models, remember, are models of unemployment.
* Of course, higher wages might be necessary to attract workers in the first place, but this is not the same as motivated them to work harder once they're in the job.