Journal of Economics

, Volume 67, Issue 3, pp 243–264 | Cite as

Privatization and efficiency wages

  • Laszlo Goerke


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.


efficiency wages privatization wage bargaining 

JEL classification

L33 J41 J45 J51 


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Copyright information

© Springer-Verlag 1998

Authors and Affiliations

  • Laszlo Goerke
    • 1
  1. 1.Department of EconomicsUniversity of KonstanzKonstanzGermany

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