Abstract
This paper points out that there may be a logical consistency issue in choosing the reference wage in efficiency wage models.
We have shown that defining the outside option in the efficiency wage logic as the market-clearing wage solves this difficulty,
and is justifiable in terms of the assumed behaviour of workers and employers. The model that we examine confirms earlier
findings of reinforcing effects between union-firm bargaining and efficiency wages. However, if union preferences vary between
wages and employment, Summers’ reinforcing effect is no longer present for each value of the parameter describing these preferences.
Above a certain threshold value of union preferences for employment, the two mechanisms do not reinforce each other anymore.
We have shown that defining the outside option in the efficiency wage logic as the market-clearing wage solves this difficulty,
and is justifiable in terms of the assumed behaviour of workers and employers. The model that we examine confirms earlier
findings of reinforcing effects between union-firm bargaining and efficiency wages. However, if union preferences vary between
wages and employment, Summers’ reinforcing effect is no longer present for each value of the parameter describing these preferences.
Above a certain threshold value of union preferences for employment, the two mechanisms do not reinforce each other anymore.
- Content Type Journal Article
- Pages 1-12
- DOI 10.1007/s12122-011-9103-z
- Authors
- Wim Meeusen, Universiteit Antwerpen, Prinsstraat 13—room B-128, BE-2000 Antwerpen, Belgium
- Vesna Stavrevska, Universiteit Antwerpen, Kipdorp 61—room Z-202, BE-2000 Antwerpen, Belgium
- Glenn Rayp, Universiteit Gent, Tweekerkenstraat 2, BE-9000 Ghent, Belgium
- Journal Journal of Labor Research
- Online ISSN 1936-4768
- Print ISSN 0195-3613