Different times, different commitments, but the same old practices: Failure of the efficiency wage model for socially devoted firms

After the stabilization plan of 1994, and trade liberalization, the Brazilian inflation rate dropped from two figures monthly to a single one annually. Several large capitalization firms began adhering to the Annual Social Audit disclosures, a series of internal and external indicators mostly related to employees' well-being and community. In this paper, we tested the Efficiency Wage Model, shirking version, as per Manchin Manning (1992) and applied by Kitazawa Ohta (2002). We observed 84 firms who were members of the Annual Social Audit network from 1997 to 2005. We find that (i) our studied firms are not paying salaries above market level, as indicated by the efficiency wage model, and (ii) the results suggest the use of the bargain model of repetitive negotiation between employers and employees.