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Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment

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  • Koskela, Erkki

    ()
    (University of Helsinki)

  • Stenbacka, Rune

    ()
    (Swedish School of Economics)

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    Abstract

    We investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing. In a partial equilibrium with exogenous outside options increased bargaining power of banks has adverse employment effects. In a general equilibrium with endogenous outside options this relationship is frequently reversed; reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections – measured by the bargaining power of trade unions - are sufficiently strong and benefit-replacement ratio high enough. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.

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    Bibliographic Info

    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1020.

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    Length: 36 pages
    Date of creation: Feb 2004
    Date of revision:
    Publication status: published in: Scandinavian Journal of Economics, 2004, 106 (4), 677-701
    Handle: RePEc:iza:izadps:dp1020

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    Related research

    Keywords: equilibrium unemployment; compensation systems; wage and loan bargaining; outside options;

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    References

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    1. Koskela, Erkki & Stenbacka, Rune, 2000. "Is there a tradeoff between bank competition and financial fragility?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 24(12), pages 1853-1873, December.
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    23. Alexander, Carol & W Ledermann, 1994. "Are Nash bargaining wage agreements unique: an investigation into bargaining sets for firm-union negotiations," Discussion Papers in Economics, Department of Economics, University of Sussex 12/94, Department of Economics, University of Sussex.
    24. Simon P. Anderson & Michael Devereux, 1989. "Profit-Sharing and Optimal Labour Contracts," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 22(2), pages 425-33, May.
    25. Cahuc, Pierre & Dormont, Brigitte, 1997. "Profit-sharing: Does it increase productivity and employment? A theoretical model and empirical evidence on French micro data," Labour Economics, Elsevier, Elsevier, vol. 4(3), pages 293-319, September.
    26. Holmlund, B., 1988. "Profit Sharing, Wage Bargaining, And Unemployment," Papers, Uppsala - Working Paper Series 1988l, Uppsala - Working Paper Series.
    27. Jerger, Jurgen & Michaelis, Jochen, 1999. " Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 101(2), pages 257-75, June.
    28. Koskela, Erkki & Stenbacka, Rune, 2000. "Agency Cost of Debt and Lending Market Competition: A Re-Examination," Research Discussion Papers, Bank of Finland 12/2000, Bank of Finland.
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    31. Erkki Koskela & Rune Stenbacka, 2001. "Equilibrium Unemployment with Credit and Labour Market Imperfections," CESifo Working Paper Series 419, CESifo Group Munich.
    32. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 18(2), pages 155-162, April.
    33. Koskela , Erkki & Stenbacka, Rune, 2001. "Equilibrium unemployment with credit and labour market imperfections," Research Discussion Papers, Bank of Finland 5/2001, Bank of Finland.
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    Citations

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    Cited by:
    1. Ernst, Ekkehard & Semmler, Willi, 2010. "Global dynamics in a model with search and matching in labor and capital markets," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(9), pages 1651-1679, September.
    2. Koskela, Erkki & Stenbacka, Rune, 2012. "The relationship between product market competition and unemployment with profit sharing," Labour Economics, Elsevier, Elsevier, vol. 19(3), pages 291-297.

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