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Efficiency wages and bargaining


  • Frank Walsh


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.

Suggested Citation

  • Frank Walsh, 2012. "Efficiency wages and bargaining," Oxford Economic Papers, Oxford University Press, vol. 64(4), pages 635-654, October.
  • Handle: RePEc:oup:oxecpp:v:64:y:2012:i:4:p:635-654

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    References listed on IDEAS

    1. Oswald, A. J., 1995. "Efficient contracts are on the labour demand curve: Theory and facts," Labour Economics, Elsevier, vol. 2(1), pages 102-102, March.
    2. 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.
    3. 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 542-555, May.
    4. 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.
    5. George A. Akerlof & Lawrence F. Katz, 1989. "Workers' Trust Funds and the Logic of Wage Profiles," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 525-536.
    6. 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.
    7. Sanfey, Peter J., 1993. "On the interaction between efficiency wages and union-firm bargaining models," Economics Letters, Elsevier, vol. 41(3), pages 319-324.
    8. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Jan Morten Dyrstad, 2015. "Resource curse avoidance: Governmental intervention and wage formation in the Norwegian petroleum sector," Working Paper Series 16715, Department of Economics, Norwegian University of Science and Technology.

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