Worker cooperation and the ratchet effect

Workers paid by the piece should be happy to introduce new techniques that increase output, but firms always seem to reduce the piece rate when worker s start earning too much money. Workers respond by restricting output and k eeping good new ideas to themselves. We show that this outcome is inevitabl e in a competitive environment. However, there are noncompetitive situation s where firms can use piece rates to get cooperation from their workers. Th ese predictions are consistent with case history evidence from the cotton s pinning industry in England in the nineteenth century and the Lincoln Elect ric Company in the United States even today.