Trade unions, efficiency wages, and shirking

Efficiency wage models typically study the determination of wages and effort levels in the context of a labour market where the supply side is competitive. In this paper we examine the effects of unionisation on wages and effort. In addition to the monitoring technology where a noisy signal of each workers performance is received, we propose and investigate a spot-check monitoring technology where the effort of a fraction of workers is measured exactly. We examine models where the union can bargain over wages alone, and over wages and effort. In all cases we show that the popular wisdom that unions reduce effort is generally false.