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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. Stephen Nickell & Daphne Nicolitsas, 1995. "How does financial pressure affect firms?," LSE Research Online Documents on Economics 20698, London School of Economics and Political Science, LSE Library.
    2. Bester, Helmut, 1995. "A bargaining model of financial intermediation," European Economic Review, Elsevier, vol. 39(2), pages 211-228, February.
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    7. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
    8. Acemoglu, Daron, 2001. "Credit market imperfections and persistent unemployment," European Economic Review, Elsevier, vol. 45(4-6), pages 665-679, May.
    9. Koskela, Erkki & Stenbacka, Rune, 2000. "Agency Cost of Debt and Lending Market Competition: A Re-Examination," Research Discussion Papers 12/2000, Bank of Finland.
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    14. Dalmazzo, Alberto, 1996. " Debt and Wage Negotiations: A Bankruptcy-Based Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 351-64.
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    26. Wasmer, Etienne & Weil, Philippe, 2002. "The Macroeconomics of Labour and Credit Market Imperfections," CEPR Discussion Papers 3334, C.E.P.R. Discussion Papers.
    27. Erkki Koskela & Rune Stenbacka, 2001. "Equilibrium Unemployment with Credit and Labour Market Imperfections," CESifo Working Paper Series 419, CESifo Group Munich.
    28. Cahuc, P. & Dormont, B., 1992. "Profit-Sharing: Does It Increase Productivity and Employment? A Theoretical Model and Empirical Evidence of French Micro Data," Papiers d'Economie Mathématique et Applications, Université Panthéon-Sorbonne (Paris 1) 92.45, Université Panthéon-Sorbonne (Paris 1).
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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, 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, vol. 19(3), pages 291-297.

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