Profit Sharing and Relative Consumption
AbstractTraditionally, 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.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6925.
Length: 10 pages
Date of creation: Oct 2012
Date of revision:
Publication status: published in: Economics Letters, 2013, 118 (1), 167-169
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Other versions of this item:
- Laszlo Goerke, 2012. "Profit Sharing and Relative Consumption," CESifo Working Paper Series 3970, CESifo Group Munich.
- Laszlo Goerke, 2012. "Profit Sharing and Relative Consumption," IAAEU Discussion Papers 201202, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
- Goerke, Laszlo, 2012. "Profit Sharing and Relative Consumption," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 66064, Verein für Socialpolitik / German Economic Association.
- 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
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