Do Labor Unions Increase Productivity?
Unions may increase productivity by facilitating communication between workers and management; there is evidence that unions lower turnover rates. VII. Other Imperfections to the Labor Market A. Imperfect Information and Efficiency Wages: There may be asymmetric information in the labor market as employers may not be able to distinguish between hard workers and lazy workers. Thus employers offer a single wage, knowing that they will hire some workers of each type. Like the lemon problem, this may tend to drive hard workers out of the market; an employer may actually make more profit by paying efficiency wages, offering a higher wage to attract hard workers and increase the average product of its workforce. B. Economic Detective: Higher Wages at Ford Motor Company In the early days of the auto industry, the wage was $3 per day, assembly-line work was repetitive and tedious, and turnover was high. Henry Ford decided to increase the daily wage to $5; the company?s profit actually increase
