Efficiency Wages and Local Wage Bargaining

Abstract

In the literature on wage drift, it is often argued that strikes or work-to-rule practices are used to force employers to pay a wage rate that exceeds the contract wage. Here, we introduce the efficiency wage argument as a foundation for bargaining about wage drift. Contrary to the view in most bargaining models, where firms and unions struggle to divide a fixed pie, given employment, we take the relation between wages and revenues explicitly into account. The implications for wages and employment appear to differ, not only with respect to the order of magnitude, but also in a qualitative sense.