A shock-effect occurs when a sudden increase in labour costs forces management to improve the efficiency of operations and raise labour productivity. The shock may originate in unionization of the firm's workforce or a legislative change: for example, the introduction of a statutory minimum wage. A shock-effect can occur only if, prior to the shock, management was satisficing; that is, tolerating less than optimal efficiency. [See beneficial constraints, union voice, and X-inefficiency.]
Subjects: Human Resource Management.