Product Market Competition, Profit Sharing and Equilibrium Unemployment
AbstractWe investigate the implications of product market imperfections on profit sharing, wage negotiation and equilibrium unemployment. The optimal profit share, which the firms use as a wage-moderating commitment device, is below the bargaining power of the trade union. Intensified product market competition decreases profit sharing, but increases the negotiated base wage, because the wage-increasing effect of reduced profit sharing dominates the wage-reducing effect associated with a higher wage elasticity of labor demand. Finally, we show that intensified product market competition does not necessarily reduce equilibrium unemployment, because it induces both higher wage mark-ups and lower optimal profit shares.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1603.
Date of creation: 2005
Date of revision:
product market competition; profit sharing; wage bargaining; equilibrium unemployment;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-20 (All new papers)
- NEP-BEC-2005-12-20 (Business Economics)
- NEP-COM-2005-12-20 (Industrial Competition)
- NEP-INT-2005-12-20 (International Trade)
- NEP-LAB-2005-12-20 (Labour Economics)
- NEP-MIC-2005-12-20 (Microeconomics)
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