Gender pay gap in the European Union

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2.2   FURTHER STUDY ON WAGE THEORY 
    This discussion on wage theory was brought up by Adam Smith through literature but it was 
through the economist Pigou that analytically formed the theory. There is a way of how employees 
and owner's insight the highest and lowest wage rates that allows barriers, but the weakness in this 
discussion is that there is not a solution for this theory. Many have tried to find the best solution, 
but the nearest one was found by Hicks (1963), but it found out to be impossible to demonstrate. 
Another economist was Nash (1950-1953) who found the right solution to this theory with the so-
called game theory, but it does not justify the level of impact on this theory.  
There are 3 different models:  
1. The contract zone of Pigou (1933) with the neoclassic approach  
2. Bargaining power of Chamberlain (1951) with the behavioural approach  
3. Bargaining solution of Nash (1950) with the theoretic game approach  
1  The contract zone of Pigou (1933) with the neoclassic approach  
It refers to minimum and maximum wage rate where the last one establishes itself. Pigou assumes 
that anytime wages are connected to negotiation that means that it has to be defined by the bipartite 
monopolistic theory, but it is not seen as the best concurrent answer and wages should not be defined 
by the demand and supply model. Wages do not equalize demand and supply force, only when both 
parts agree to define a higher and lower wage, but it can reduce the bargaining limits.   
The barrier is the highest wage that trade asks for without any negative depletion and the lowest 
barrier is the lowest wage that owners should give so that they can have many workers.  
This image below is the so called “sticking point” which must be private between union and 
employer and not public to third parties.  
  
  
  
 
1
 Chamberlain, N. W., Collective Bargaining, New York: McGraw-Hill, 1951; 
2
 Nash, J. F., Jr., "The Bargaining Problem," Econometrica, 1950, Vol. 18, pp. 155-162; 
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Pigou, A. C, The Economics of Welfare, London: Macmillan and Co., Ltd., 1933.