Corruption, Efficiency Wage and Union Leadership

Sarbajit Chaudhuri and Krishnendu Dastidar

Pacific Economic Review, 2014, vol. 19, issue 5, 559-576

Abstract: This paper develops a model of determination of the unionized wage in the presence of both collective bargaining and an efficiency wage. The efficiency of each worker is positively related to both the wage and the unemployment rate in the economy. The unionized wage is greater than the efficiency wage and the firm finds it profitable to keep the unionized wage as close as possible to the efficiency wage. The union leader who is entrusted with the task of determining the unionized wage charges a bribe from the firm to keep the wage close to this level. The corrupt trade union leader and the management of the firm play a two-stage Nash bargaining game from where the equilibrium unionized wage and the bribe are determined. The analysis leads to some interesting results which are important for anticorruption policy formulation.

Date: 2014
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