Efficiency wages and bargaining

In contrast to results found in the literature to date this paper shows that the efficiency wage and the wage that solves a bargaining problem will often be independent. If worker bargaining power is weak an efficiency wage equilibrium where bargaining has no affect on the contract emerges. If worker bargaining power is strong we have a bargaining contract that is unaffected by the efficiency wage constraint. Empirical evidence shows that efficiency wage effects matter only for non-union workers. That is workers with weak bargaining power. For workers with stronger bargaining power (unionized workers) there is a significant union wage premium but supervision wage affects are unimportant.