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Profit Sharing, Risk Sharing, and Firm Size: Implications of Efficiency Wages

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Author Info

  • Juin-Jen Chang

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Abstract

By taking account of output fluctuations, this paper constructs a synthesis of profit-sharing and efficiency-wage models to highlight the role of the risk attitudes of the firm and its employees. We show, contrary to the traditional efficiency wage theory, that in a profit-sharing economy unemployment is no longer a necessary device to induce work effort and, consequently, the labor market equilibrium may be characterized by full employment. Such a result is more likely to be true when the economy is characterized by small-sized firms. In addition, we also provide a preliminary sketch of the situations in which the firm chooses a profit-sharing program or a fixed-wage one, and discuss how a firm determines its pay parameters and employment in response to output fluctuations. Copyright Springer 2006

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File URL: http://hdl.handle.net/10.1007/s11187-006-0022-y
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Bibliographic Info

Article provided by Springer in its journal Small Business Economics.

Volume (Year): 27 (2006)
Issue (Month): 2 (October)
Pages: 261-273

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Handle: RePEc:kap:sbusec:v:27:y:2006:i:2:p:261-273

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Web page: http://www.springerlink.com/link.asp?id=100338

Related research

Keywords: Profit sharing; Risk sharing; Efficiency wages; Firm size; J33; J41; D82; J21;

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References

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  1. Martin J. Conyon & Richard Freeman, 2002. "Shared Modes of Compensation and Firm Performance: UK Evidence," CEP Discussion Papers dp0560, Centre for Economic Performance, LSE.
  2. Douglas L. Kruse, 1993. "Does Profit Sharing Affect Productivity?," NBER Working Papers 4542, National Bureau of Economic Research, Inc.
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Cited by:
  1. Göcke, Matthias, 2009. "Efficiency wages and negotiated profit-sharing under uncertainty," Discussion Papers 42, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).

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