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The relationship between product market competition and unemployment with profit sharing

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  • Koskela, Erkki
  • Stenbacka, Rune

Abstract

We investigate the implications of product market imperfections on negotiated wages and equilibrium unemployment under profit sharing. We show that intensified product market competition reduces equilibrium unemployment in a strictly monotonic way when the trade union's bargaining power exceeds the profit share. If the profit share exceeds the trade union's bargaining power, the effect of product market competition is ambiguous: there is a threshold for the benefit–replacement ratio above (below) which intensified product market competition increases (decreases) equilibrium unemployment. The profit share and the union's bargaining power affect the wage mark-up, and thereby equilibrium unemployment, in different directions.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:labeco:v:19:y:2012:i:3:p:291-297
    DOI: 10.1016/j.labeco.2012.02.003
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    3. Roberto Burguet & Jozsef Sakovics, 2016. "Bidding for input in oligopoly," Edinburgh School of Economics Discussion Paper Series 266, Edinburgh School of Economics, University of Edinburgh.
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    More about this item

    Keywords

    Product market competition; Profit sharing; Wage bargaining; Equilibrium unemployment;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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