Parente and Prescott's Theory May Work in Practice But Does Not Work in Theory
Contributions to Macroeconomics, Vol. 3, No. 1, Article 8, 2003
Posted: 21 Oct 2006
In this paper we challenge Parente and Prescott's (1999) theoretical framework, which establishes that unions use their control of "work practices" to thwart the efficient use of technology in the firms. We argue instead that unions, despite endowing monopoly rights over a technology, should tend to impose its efficient use. In fact if union members care about labor disutility, along with wage incomes, they will dictate "work practices" consistent with operating technology at full efficiency, in order to allow workers to enjoy more leisure. Our result is more general than Parent and Prescott's and does not rely on the particular specification of preferences.
Keywords: Trade Unions, Inefficiency, Technological Choice, Institutions and Growth
JEL Classification: J2, J3, J5
Suggested Citation: Suggested Citation