IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp6925.html
   My bibliography  Save this paper

Profit Sharing and Relative Consumption

Author

Listed:
  • Goerke, Laszlo

    (IAAEU, University of Trier)

Abstract

Traditionally, it has been argued that profit sharing can increase employment and welfare because it lowers marginal labour costs without reducing total cost or labour income. In this paper, we show that profit sharing can also represent a Pareto-improvement if labour supply is excessive due to relative consumption effects. Mandatory profit sharing reduces wages. If the rise in profit income keeps total income constant, profit sharing will have no income but only a substitution effect. Since labour supply is excessive, profit sharing constitutes a Pareto-improvement.

Suggested Citation

  • Goerke, Laszlo, 2012. "Profit Sharing and Relative Consumption," IZA Discussion Papers 6925, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6925
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp6925.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jurgen Jerger & Jochen Michaelis, 1999. "Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(2), pages 257-275, June.
    2. Michaelis, Jochen, 1997. "On the equivalence of profit and revenue sharing," Economics Letters, Elsevier, vol. 57(1), pages 113-118, November.
    3. Francisco Alvarez-Cuadrado, 2007. "Envy, leisure, and restrictions on working hours," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1286-1310, November.
    4. Corneo, Giacomo, 2002. "The efficient side of progressive income taxation," European Economic Review, Elsevier, vol. 46(7), pages 1359-1368, July.
    5. Jerger, Jurgen & Michaelis, Jochen, 1999. " Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(2), pages 257-275, June.
    6. Lin, Chung-cheng & Chang, Juin-jen & Lai, Ching-chong, 2002. "Profit sharing as a worker discipline device," Economic Modelling, Elsevier, vol. 19(5), pages 815-828, November.
    7. Weitzman, Martin L, 1985. "The Simple Macroeconomics of Profit Sharing," American Economic Review, American Economic Association, vol. 75(5), pages 937-953, December.
    8. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
    9. Georges, Christophre, 1998. "Profit-Shares, Bargaining, and Unemployment," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 286-291, April.
    10. Pierre Cahuc & Fabien Postel-Vinay, 2005. "ocial Status and the Overworked Consumer," Annals of Economics and Statistics, GENES, issue 78, pages 143-161.
    11. Jackman, Richard, 1988. "Profit-sharing in a unionised economy with imperfect competition," International Journal of Industrial Organization, Elsevier, vol. 6(1), pages 47-57, March.
    12. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
    13. Persson, Mats, 1995. " Why Are Taxes So High in Egalitarian Societies?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 569-580, December.
    14. Eckalbar, John C., 1988. "Profit sharing in a competitive environment," Economic Modelling, Elsevier, vol. 5(4), pages 396-402, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bilancini, Ennio & Boncinelli, Leonardo, 2019. "Wage inequality, labor income taxes, and the notion of social status," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-35.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Goerke, Laszlo, 2013. "Relative consumption and tax evasion," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 52-65.
    2. Goerke, Laszlo & Hillesheim, Inga, 2013. "Relative consumption, working time, and trade unions," Labour Economics, Elsevier, vol. 24(C), pages 170-179.
    3. Jerger, Jürgen & Michaelis, Jochen, 2011. "The fixed wage puzzle: Why profit sharing is so hard to implement," Economics Letters, Elsevier, vol. 110(2), pages 104-106, February.
    4. Chia-ying Liu & Juin-jen Chang, 2011. "Macroeconomic implications of a sharing compensation scheme in a model of endogenous growth," Journal of Economics, Springer, vol. 102(1), pages 57-75, January.
    5. 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.
    6. Koskela, Erkki & Stenbacka, Rune, 2001. "Equilibrium unemployment with credit and labour market imperfections," Bank of Finland Research Discussion Papers 5/2001, Bank of Finland.
    7. Goerke, Laszlo & Neugart, Michael, 2017. "Social comparisons in oligopsony," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 196-209.
    8. Bilancini, Ennio & Boncinelli, Leonardo, 2019. "Wage inequality, labor income taxes, and the notion of social status," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-35.
    9. Laszlo Goerke & Michael Neugart, 2021. "Social preferences, monopsony and government intervention," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(2), pages 864-891, May.
    10. Koskela, Erkki & Stenbacka, Rune, 2003. "Equilibrium Unemployment Under Negotiated Profit Sharing," IZA Discussion Papers 840, Institute of Labor Economics (IZA).
    11. Nico van Leeuwen & Arjan Lejour, 2006. "Bilateral Services Trade Data and the GTAP database," CPB Memorandum 160.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Paternalism against Veblen: Optimal Taxation and Non-Respected Preferences for Social Comparisons," Umeå Economic Studies 901, Umeå University, Department of Economics.
    13. Koskela, E. & Stenbacka, R., 2000. "Compensation and Bargaining with Entrepreneurship as the Outside Option," University of Helsinki, Department of Economics 479, Department of Economics.
    14. Stefan Dodds, 2012. "Redistributive taxation with heterogeneous relative consumption concerns," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 220-246, February.
    15. Koskela, E. & Stenbacka, R., 2000. "Capital Structure, Wage Bargaining and Employment," University of Helsinki, Department of Economics 475, Department of Economics.
    16. Goerke, Laszlo & Pannenberg, Markus, 2013. "Keeping up with the Joneses: Income Comparisons and Labour Supply," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80033, Verein für Socialpolitik / German Economic Association.
    17. Mauro Mastrogiacomo & Rob Euwals & Raun van Ooijen, 2010. "Private wealth and planned early retirement: A panel data analysis for the Netherlands 1994-2009," CPB Discussion Paper 160.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    18. Koskela, Erkki & Stenbacka, Rune, 2003. "Equilibrium Unemployment Under Negotiated Profit Sharing," IZA Discussion Papers 840, Institute of Labor Economics (IZA).
    19. Aronsson, Thomas & Johansson-Stenman, Olof, 2015. "Keeping up with the Joneses, the Smiths and the Tanakas: On international tax coordination and social comparisons," Journal of Public Economics, Elsevier, vol. 131(C), pages 71-86.
    20. Wirl Franz & Novak Andreas J. & Hof Franz X., 2008. "Happiness due to Consumption and its Increases, Wealth and Status," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(4), pages 1-34, December.

    More about this item

    Keywords

    relative consumption; profit sharing; labour supply; status concerns;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp6925. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.