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Efficiency wages and bargaining

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  • Frank Walsh

Abstract

In contrast to results found in the literature to date this paper shows that the efficiency wage and the wage that solves a bargaining problem will often be independent. If worker bargaining power is weak an efficiency wage equilibrium where bargaining has no affect on the contract emerges. If worker bargaining power is strong we have a bargaining contract that is unaffected by the efficiency wage constraint. Empirical evidence shows that efficiency wage effects matter only for non-union workers. That is workers with weak bargaining power. For workers with stronger bargaining power (unionized workers) there is a significant union wage premium but supervision wage affects are unimportant. Copyright 2012 Oxford University Press 2012 All rights reserved, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 64 (2012)
Issue (Month): 4 (October)
Pages: 635-654

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Handle: RePEc:oup:oxecpp:v:64:y:2012:i:4:p:635-654

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  1. Konings, Jozef & Walsh, Patrick P, 1994. "Evidence of Efficiency Wage Payments in UK Firm Level Panel Data," Economic Journal, Royal Economic Society, vol. 104(424), pages 542-55, May.
  2. Andrew Oswald, 1984. "Efficient Contracts are on the Labour Demand Curve: Theory and Facts," Working Papers 555, Princeton University, Department of Economics, Industrial Relations Section..
  3. Machin, Stephen & Manning, Alan, 1992. "Testing Dynamic Models of Worker Effort," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 288-305, July.
  4. Lindbeck, Assar & Snower, Dennis J., 1991. "Interactions between the efficiency wage and insider-outsider theories," Economics Letters, Elsevier, vol. 37(2), pages 193-196, October.
  5. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Working Papers 1906, National Bureau of Economic Research, Inc.
  6. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
  7. George A. Akerlof & Lawrence F. Katz, 1988. "Workers' Trust Funds and the Logic of Wage Profiles," NBER Working Papers 2548, National Bureau of Economic Research, Inc.
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