Strategic Outsourcing, Profit Sharing and Equilibrium Unemployment
AbstractWe analyze the following questions associated with outsourcing and profit sharing under imperfect labour markets. How does strategic outsourcing influence wage formation, profit sharing and employee effort when firms commit to optimal profit sharing before wage formation or decide for profit sharing after wage formation? What is the relationship between outsourcing, profit sharing, and equilibrium unemployment when profit sharing is also a part of a compensation scheme in all industries? We find that if firms will decide on profit sharing before the wage formation, higher outsourcing decreases wage whereas profit sharing has an ambiguous effect. Under flexible profit sharing wage is smaller than in the case of committed profit sharing. For equilibrium unemployment, we find that if there is also profit sharing in other industries, the effects of outsourcing and profit sharing on the unemployment rate is ambiguous both in the committed and flexible case.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3413.
Length: 36 pages
Date of creation: Mar 2008
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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
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-04 (All new papers)
- NEP-BEC-2008-04-04 (Business Economics)
- NEP-CSE-2008-04-04 (Economics of Strategic Management)
- NEP-LAB-2008-04-04 (Labour Economics)
- NEP-MAC-2008-04-04 (Macroeconomics)
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