Jahrb. f. Nationalök. u. Stat. (G. Fischer Verlag, Stuttgart 1993) Bd. (Vol.) 212/1-2Efficiency Wages and Union Wage BargainingEffizienzlöhne und GewerkschaftsverhandlungenBy Eva Pichler, Vienna1.IntroductionIn the modern labor market literature, the efficiency wage hypothesis in its variousversions has gained significant importance for the understanding of involuntaryunemployment by offering a consistent microfoundation of above market-clearingwages. If output depends upon labor measured in efficiency units ("efficient labor"),which is given by the product of effort per worker and employment, and if effort is anincreasing function of the wage rate, firms are not concerned with paying the lowestpossible wage per worker, but choose wages to minimize costs per effective unit oflabor. For the profit maximizing "efficiency wage", the well-known Solow-conditionrequires that the elasticity of effort with respect to wages equals unity.Different versions of the efficiency wage hypothesis have demonstrated that theefficiency wage will be strictly higher than the market clearing wage and hence lead toinvoluntary unemployment. In explaining above Walrasian wages and unemployment,efficiency wage theory competes inter alia with the economic analysis of unionbehavior. Thus it is interesting to investigate the combined effect of unions andefficiency wages. We inquire whether the simultaneous presence of unions andefficiency wage considerations reinforce each other in its effect on
Jahrbücher für Nationalökonomie und Statistik – de Gruyter
Published: Jan 1, 1993
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