The pay parameters in a profit-sharing system are likely to be determined by collective bargaining between unions and employers. In this case, employment will not necessarily be higher under profit sharing than under a fixed wage system. For a fixed capital stock, the most likely case is that profit sharing is better for unions and worse for employers than a fixed wage system. With endogenous investments, both parties may be worse off under profit sharing than under a fixed wage system. This might be one of the reasons why the authors in fact do not observe much profit sharing under collective bargaining. Copyright 1988 by The editors of the Scandinavian Journal of Economics.
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