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Profit Sharing, Wage Bargaining, and Unemployment

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  • Holmlund, Bertil

Abstract

This paper examines the effects of profit sharing in an economy with decentralized wage bargaining. Profit sharing makes workers' income more sensitive to wage changes, and this leads to wage moderation. But economywide profit sharing may also improve workers' outside income opportunities, and this strengthens the union's hand in bargaining and tends to raise wages. It turns out that equilibrium unemployment is reduced by profit sharing as long as the elasticity of substitution between labor and capital is less than one, whereas unemployment is increased if the elasticity of substitution is greater than one. Copyright 1990 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 28 (1990)
Issue (Month): 2 (April)
Pages: 257-68

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Handle: RePEc:oup:ecinqu:v:28:y:1990:i:2:p:257-68

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Cited by:
  1. Ronnie Schöb, 2001. "Public Profit Sharing," UWO Department of Economics Working Papers 20012, University of Western Ontario, Department of Economics.
  2. Jan König & Erkki Koskela, 2011. "Does International Outsourcing Really Lower Workers’ Income?," Journal of Labor Research, Springer, vol. 32(1), pages 21-38, March.
  3. Bratsiotis, George J., 2008. "Influential price and wage setters, monetary policy and real effects," European Journal of Political Economy, Elsevier, vol. 24(2), pages 503-517, June.
  4. Jürgen Jerger & Jochen Michaelis, 2010. "The Fixed Wage Puzzle : Why Profit Sharing Is So Hard to Implement," Working Papers 283, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
  5. 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.
  6. Koskela, Erkki & Stenbacka, Rune, 2004. "Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment," IZA Discussion Papers 1020, Institute for the Study of Labor (IZA).
  7. 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.
  8. Erkki Koskela & Rune Stenbacka, 2004. "Equilibrium unemployment under negotiated profit sharing," Labor and Demography 0404009, EconWPA.

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