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

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Author Info
Koskela, Erkki () (University of Helsinki)
König, Jan () (Free University of Berlin)
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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3876.

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Date of creation: Dec 2008
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Handle: RePEc:iza:izadps:dp3876

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

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