Efficiency wages and local versus central bargaining

Abstract

In a simple efficiency wage model an employers'' confederation always wants a lower wage than the individual employers. A centralized union normally wants a lower wage than local unions if the demand for labour in efficiency units is elastic, a higher wage if it is inelastic. Local unions which are willing to accept a reduction in the total wage bill to increase employment, wants lower wages than their employers. In the long run wages per efficiency unit of labour are independent of the bargaining system, while there is a trade-off between high employment and high hourly wages