TRADE UNIONS, EFFICIENCY WAGES, AND SHIRKING

Efficiency wage models typically study the determination ofwages and effort levels in the context of a labour market wherethe supply side is competitive. In this paper we examine theeffects of unionisation on wages and effort. In addition tothe monitoring technology where a noisy signal of each workersperformance is received, we propose and investigate a spot-checkmonitoring technology where the effort of a fraction of workersis measured exactly. We examine models where the union can bargainover wages alone, and over wages and effort. In all cases weshow that the popular wisdom that unions reduce effort is generallyfalse.