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Worker Cooperation and the Ratchet Effect

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  • Carmichael, H Lorne
  • MacLeod, W Bentley

Abstract

Workers paid by the piece should be happy to introduce new techniques that increase output, but firms always seem to reduce the piece rate when workers start earning too much money. Workers respond by restricting output and keeping good new ideas to themselves. We show that this outcome is inevitable in a competitive environment. However, there are noncompetitive situations where firms can use piece rates to get cooperation from their workers. These predictions are consistent with case history evidence from the cotton spinning industry in England in the nineteenth century and the Lincoln Electric Company in the United States even today. Copyright 2000 by University of Chicago Press.

Suggested Citation

  • Carmichael, H Lorne & MacLeod, W Bentley, 2000. "Worker Cooperation and the Ratchet Effect," Journal of Labor Economics, University of Chicago Press, vol. 18(1), pages 1-19, January.
  • Handle: RePEc:ucp:jlabec:v:18:y:2000:i:1:p:1-19
    DOI: 10.1086/209948
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    References listed on IDEAS

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    1. Huberman, Michael, 1986. "Invisible Handshakes in Lancashire: Cotton Spinning in the First Half of the Nineteenth Century," The Journal of Economic History, Cambridge University Press, vol. 46(4), pages 987-998, December.
    2. Joesph E. Stiglitz, 1975. "Incentives, Risk, and Information: Notes Towards a Theory of Hierarchy," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 552-579, Autumn.
    3. Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
    4. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-431, July.
    5. Gibbons, Robert, 1987. "Piece-Rate Incentive Schemes," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 413-429, October.
    6. Milgrom, Paul & Roberts, John, 1995. "Complementarities and fit strategy, structure, and organizational change in manufacturing," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 179-208, April.
    7. Lazonick, William, 1979. "Industrial Relations and Technical Change: The Case of the Self-Acting Mule," Cambridge Journal of Economics, Oxford University Press, vol. 3(3), pages 231-262, September.
    8. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-480, March.
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