Privatization and efficiency wages
- Cite this article as:
- Goerke, L. Journal of Economics Zeitschrift für Nationalökonomie (1998) 67: 243. doi:10.1007/BF01234645
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The impact of privatization is investigated in a shirking model of efficiency wages. Without trade unions, privatization — modeled as a stricter control of employees — lowers wages and raises employment, output, and profits, while effort and productivity effects depend on the employees' risk aversion. However, for a utilitarian monopoly union, facing a company characterized by a constant-elasticity labor-demand schedule, privatization raises efficiency wages. If privatization is modeled as a stronger profit orientation, wages, effort, and labor productivity will rise, while employment will shrink in a wage-setting firm. Again, wage and employment effects can be reversed in the case of wage negotiations.