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Steady State Unemployment under Profit Sharing

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  • Weitzman, Martin L

Abstract

This paper demonstrates how asymmetric treatment of high-seniority "insider" workers and non-tenured "outsiders" gives rise to bad macroeconomic st eady states in a wage economy. The framework uses a Nash bargaining solution where workers may bargain over pay but firms control hiring. Profit sharing is then considered as an alternative payment mechanism having the automatically corrective incentive property that employers want to hire more outsiders. Given the assumptions of the model, it is shown that widespread profit sharing results in lower unemployment and more output even though it is individually rational for insiders to prefer wages over profit shares. Copyright 1987 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 97 (1987)
Issue (Month): 385 (March)
Pages: 86-105

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Handle: RePEc:ecj:econjl:v:97:y:1987:i:385:p:86-105

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Cited by:
  1. Koskela, Erkki & Stenbacka, Rune, 2012. "The relationship between product market competition and unemployment with profit sharing," Labour Economics, Elsevier, vol. 19(3), pages 291-297.
  2. Erkki Koskela & Rune Stenbacka, 2001. "Equilibrium Unemployment with Credit and Labour Market Imperfections," CESifo Working Paper Series 419, CESifo Group Munich.
  3. Erkki Koskela & Rune Stenbacka, 2002. "Equilibrium Unemployment and Credit Market Imperfections: The Critical Role of Labour Mobility," CESifo Working Paper Series 654, CESifo Group Munich.
  4. Erkki Koskela & Rune Stenbacka, 2000. "Capital Structure, Wage Bargaining and Employment," CESifo Working Paper Series 275, CESifo Group Munich.
  5. H. Molana & T. Moutos, 1992. "Returns to scale, imperfect competition and aggregate demand and trade policy effects in a two-country model," Open Economies Review, Springer, vol. 3(3), pages 271-295, October.
  6. Rick Harbaugh, . "Employee Stock Ownership vs. Profit Sharing," Claremont Colleges Working Papers 2000-28, Claremont Colleges.
  7. Altenburg, Lutz & Straub, Martin, 2001. "Taxes on labour and unemployment in a shirking model with union bargaining," Labour Economics, Elsevier, vol. 8(6), pages 721-744, December.
  8. Harbaugh, Rick, 2005. "The effect of employee stock ownership on wage and employment bargaining," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 565-583, September.
  9. Rick Harbaugh, 2001. "Equity Stakes and Hold-up Problems," Claremont Colleges Working Papers 2001-31, Claremont Colleges.
  10. Michaelis, Jochen, 1997. "On the equivalence of profit and revenue sharing," Economics Letters, Elsevier, vol. 57(1), pages 113-118, November.
  11. Pierre Cahuc, 1990. "La théorie des négociations salariales : une revue de la littérature," Économie et Prévision, Programme National Persée, vol. 92(1), pages 21-30.
  12. Koskela, Erkki & Stenbacka, Rune, 2003. "Profit Sharing and Unemployment: An Approach with Bargaining and Efficiency Wage Economics," Discussion Papers 863, The Research Institute of the Finnish Economy.
  13. Erkki Koskela & Jan König, 2010. "Profit Sharing, Wage Formation and Flexible Outsourcing under Labor Market Imperfection," CESifo Working Paper Series 2925, CESifo Group Munich.
  14. Jan König & Erkki Koskela, 2011. "Does International Outsourcing Really Lower Workers’ Income?," Journal of Labor Research, Springer, vol. 32(1), pages 21-38, March.
  15. Erkki Koskela & Rune Stenbacka, 2000. "Compensation and Bargaining with Entrpreneurship as the Outside Option," CESifo Working Paper Series 314, CESifo Group Munich.
  16. Koskela, Erkki & König, Jan, 2011. "The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing," IZA Discussion Papers 5798, Institute for the Study of Labor (IZA).
  17. Fehn, Rainer, 2002. "Arbeitsmarktflexibilisierung und Arbeitslosigkeit," Wirtschaftswissenschaftliche Beiträge 54, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  18. Tim Jenkinson & Sandeep Bhargava, 1996. "Partage explicite ou implicite du profit dans la détermination des salaires," Économie et Prévision, Programme National Persée, vol. 126(5), pages 19-29.
  19. Jellal, Mohamed, 2012. "Dualisme Migration et Chômage au Maroc
    [Morocco dualism migration and unemployment policies]
    ," MPRA Paper 38365, University Library of Munich, Germany.

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