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Profit Sharing and Unemployment: An Approach with Bargaining and Efficiency-Wage Effects

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  • Erkki Koskela
  • Rune Stenbacka
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    Abstract

    We offer a unified framework to analyse the determination of employment, employee effort, wages, and profit sharing when firms face stochastic revenue shocks. We apply a generalized Nash bargaining solution, which extends the wage bargaining literature by incorporating efficiency-wage considerations, profit sharing, and exogenous capital structure. The profit-sharing instrument is demonstrated to have positive effort-enhancing and wage-moderating effects, which exactly offset the negative dilution effect in equilibrium. We show that the introduction of profit sharing decreases equilibrium unemployment if the benefit replacement ratio is high enough, whereas the reverse holds if the benefit replacement ratio is low.

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    Bibliographic Info

    Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

    Volume (Year): 160 (2004)
    Issue (Month): 3 (September)
    Pages: 477-

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    Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200409)160:3_477:psauaa_2.0.tx_2-l

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    References

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    1. Wadhwani, Sushil & Wall, Martin, 1990. "The Effects of Profit-Sharing on Employment, Wages, Stock Returns and Productivity: Evidence from UK Micro-data," Economic Journal, Royal Economic Society, vol. 100(399), pages 1-17, March.
    2. Garino, Gaia & Martin, Christopher, 2000. "Efficiency wages and union-firm bargaining," Economics Letters, Elsevier, vol. 69(2), pages 181-185, November.
    3. Cahue, P. & Dormont, B., 1993. "Profit-Sharing: Does It Increase Productivity and Employment?," Papers 9307, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
    4. Bulkley, George & Myles, Gareth D, 1996. "Trade Unions, Efficiency Wages, and Shirking," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 75-88, January.
    5. Jerger, Jurgen & Michaelis, Jochen, 1999. " Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(2), pages 257-75, June.
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    Cited by:
    1. Erkki Koskela & Rune Stenbacka, 2006. "Flexible and Committed Profit Sharing with Wage Bargaining: Implications for Equilibrium Unemployment," Journal of Economics, Springer, vol. 87(2), pages 159-180, 03.
    2. Matthias Göcke, 2009. "Efficiency Wages and Negotiated Profit-Sharing under Uncertainty," MAGKS Papers on Economics 200919, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Heikki Kauppi & Erkki Koskela & Rune Stenbacka, 2004. "Equilibrium Unemployment and Capital Intensity Under Product and Labor Market Imperfections," CESifo Working Paper Series 1343, CESifo Group Munich.
    4. Erkki Koskela & Jan König, 2007. "Strategic Outsourcing, Profit Sharing and Equilibrium Unemployment," CESifo Working Paper Series 2168, CESifo Group Munich.

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