The authors consider an economy in which all firms are unionized and bargain with their own union. If unions bargain over employment as well as wages, employment will be the same as if they bargain over wages only, provided that the production function is Cobb-Douglas. (Employment will be higher if the elasticity of substitution between labor and capital is smaller than unity.) If the authors start from a fully competitive labor market and then move to one of efficient bargaining (over wages and employment), employment falls. This is so even if the marginal utility of income is constant, so that bargaining is "strongly efficient."

Since individual welfare depends on family income, we ask two main questions: (1) Is family income more explicable than individual earnings? Due to assortative mating, schooling explains 20 percent of the experience-constant annual income of families, compared with under 15 percent of the experience-constant earnings of men. We explain this outcome using the model of family labor supply. We also experiment with other measures of family welfare. (2) How can policies affecting family income be evaluated? We argue that a lifetime income framework is needed here and show how different policies can be evaluated using explicit equity-efficiency tradeoffs.

Journal Article Human Capital and Earnings: British Evidence and a Critique Get access George Psacharopoulos, George Psacharopoulos London School of Economics Search for other works by this author on: Oxford Academic Google Scholar Richard Layard Richard Layard London School of Economics Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 3, July 1979, Pages 485–503, https://doi.org/10.2307/2297015 Published: 01 July 1979 Article history Received: 01 October 1976 Accepted: 01 June 1978 Published: 01 July 1979