Profit Sharing and Unemployment: An Approach with Bargaining and Efficiency-Wage Effects
AbstractWe 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 InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 160 (2004)
Issue (Month): 3 (September)
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Find related papers by JEL classification:
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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