Union Bargaining Power in an Efficiency Wage Environment

This paper merges a cost-based model of union bargaining power, in which bargaining power reflects relative costs of agreement and disagreement facing unions and management, with an efficiency-wage model, in which effort per hour responds positively to the real wage. Union bargaining alters the effort/wage relationship to increase the wage for a given level of effort. The model predicts that employment decline or rising import penetration in unionized industries will diminish union bargaining power, reducing the union wage differential. This prediction is consistent with wage developments of the 1980s.