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The Role of Profit Sharing in a Dual Labour Market with Flexible Outsourcing

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Author Info
Erkki Koskela ()
Jan König ()
Abstract

We analyze the following questions associated with flexible outsourcing under partly imperfect dual domestic labour markets, where high skilled workers participate in firm’s profit via profit sharing: How does the implementation of profit sharing influence flexible outsourcing? What is the relationship between outsourcing cost, profit sharing and wages? We show that profit sharing has a positive effect on low skilled wage and thus an outsourcing enhancing character. The wages of both types of labour are negatively correlated and lower outsourcing cost can increase the wage dispersion by decreasing the low skilled wage and raising the high skilled wage. The overall effect of profit sharing on high skilled wage is ambiguous due to a positive direct effect and a negative indirect effect via the low skilled wage.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2533.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2533

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Related research
Keywords: flexible outsourcing; dual labour market; profit sharing; labour market imperfection; employee effort;

Find related papers by JEL classification:
E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition

References listed on IDEAS
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  1. Mine Zeynep Senses, 2006. "The Effects of Outsourcing on the Elasticity of Labor Demand," Working Papers 06-07, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
  3. Alexander Hijzen, 2007. "International Outsourcing, Technological Change, and Wage Inequality," Review of International Economics, Blackwell Publishing, vol. 15(1), pages 188-205, 02. [Downloadable!] (restricted)
  4. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007. "Welfare reform in European countries: a microsimulation analysis," Economic Journal, Royal Economic Society, vol. 117(516), pages 1-44, 01. [Downloadable!] (restricted)
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  5. Lin, Chung-cheng & Chang, Juin-jen & Lai, Ching-chong, 2002. "Profit sharing as a worker discipline device," Economic Modelling, Elsevier, vol. 19(5), pages 815-828, November. [Downloadable!] (restricted)
  6. Kjell Erik Lommerud & Odd Rune Straume & Lars Sorgard, 2006. "National Versus International Mergers in Unionized Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 212-233, Spring.
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  7. Davidson, Carl & Matusz, Steven J. & Nelson, Douglas R., 2007. "Can compensation save free trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 167-186, March. [Downloadable!] (restricted)
  8. Rebecca Riley & Garry Young, 2007. "Skill heterogeneity and equilibrium unemployment," Oxford Economic Papers, Oxford University Press, vol. 59(4), pages 702-725, October. [Downloadable!] (restricted)
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This page was last updated on 2009-11-3.

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