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Profit Sharing, Wage Formation and Flexible Outsourcing under Labor Market Imperfection

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  • Koskela, Erkki

    ()
    (University of Helsinki)

  • König, Jan

    ()
    (Free University of Berlin)

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    Abstract

    We combine profit sharing and outsourcing, if the wage for worker is decided by a labor union to analyze how does the implementation of profit sharing affect individual effort and the bargained wage and thus outsourcing? We find that profit sharing and the wage level have an individual effort-augmenting effect and therefore increase productivity. We also find that the wage effect of profit sharing is ambiguous. There is a wage decreasing substitution effect, but on the other hand, there is a wage increasing effect via labor demand elasticity so that outsourcing and employment effects are also ambiguous.

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    Bibliographic Info

    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4707.

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    Length: 26 pages
    Date of creation: Jan 2010
    Date of revision:
    Publication status: published in: Review of International Economics, 2012, 20 (1), 18 - 28
    Handle: RePEc:iza:izadps:dp4707

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    Related research

    Keywords: profit sharing; flexible outsourcing; labor market imperfection; employee effort;

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    References

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    1. Ingo Geishecker & Holger Görg, 2008. "Winners and losers: a micro-level analysis of international outsourcing and wages," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 243-270, February.
    2. Hartmut Egger & Peter Egger, . "International Outsourcing and the Productivity of Low-skilled Labour in the EU," WIFO Working Papers 152, WIFO.
    3. Martin J. Conyon & Richard Freeman, 2002. "Shared Modes of Compensation and Firm Performance: UK Evidence," CEP Discussion Papers dp0560, Centre for Economic Performance, LSE.
    4. Mary Amiti & Shang-Jin Wei, 2004. "Fear of Service Outsourcing: Is It Justified?," NBER Working Papers 10808, National Bureau of Economic Research, Inc.
    5. Jellal, Mohamed & Zenou, Yves, 2000. "A dynamic efficiency wage model with learning by doing," Economics Letters, Elsevier, vol. 66(1), pages 99-105, January.
    6. Stefanova Boyka M, 2006. "The Political Economy of Outsourcing in the European Union and the East-European Enlargement," Business and Politics, De Gruyter, vol. 8(2), pages 1-45, August.
    7. Hijzen, Alexander & Görg, Holger & Hine, Robert C., 2004. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," IZA Discussion Papers 1249, Institute for the Study of Labor (IZA).
    8. Munch, Jakob R. & Skaksen, Jan Rose, 2005. "Specialization, Outsourcing and Wages," IZA Discussion Papers 1907, Institute for the Study of Labor (IZA).
    9. Douglas L. Kruse, 1993. "Does Profit Sharing Affect Productivity?," NBER Working Papers 4542, National Bureau of Economic Research, Inc.
    10. David Card & Richard Blundell & Richard B. Freeman, 2004. "Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000," NBER Books, National Bureau of Economic Research, Inc, number card04-1, May.
    11. Mary Amiti & Shang-Jin Wei, 2004. "Fear of Service Outsourcing," IMF Working Papers 04/186, International Monetary Fund.
    12. 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.
    13. Gorg, Holger & Hanley, Aoife, 2005. "Labour demand effects of international outsourcing: Evidence from plant-level data," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 365-376.
    14. Erkki Koskela & Jan König, 2009. "Can Profit Sharing Lower Flexible Outsourcing? A Note," CESifo Working Paper Series 2606, CESifo Group Munich.
    15. Booth, Alison L & Frank, Jeff, 1999. "Earnings, Productivity, and Performance-Related Pay," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 447-63, July.
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