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Equilibrium Unemployment Under Negotiated Profit Sharing

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Author Info
Koskela, Erkki () (University of Helsinki, Bank of Finland and IZA Bonn)
Stenbacka, Rune (Swedish School of Economics)
Abstract

We study employment, employee effort, wages and profit sharing when firms face stochastic revenue shocks and when base wages and profit shares are determined through negotiations. The negotiated profit share depends positively on the relative bargaining power of the trade union and it has effort-enhancing and wage-moderating effects. We show that higher profit sharing reduces equilibrium unemployment under circumstances with sufficiently ‘rigid’ labour market institutions, i.e. sufficiently high benefit-replacement ratios and relative bargaining powers of trade unions. Conversely, profit sharing seems to be destructive from the point of view of employment when the labour market ‘rigidities’ are sufficiently small.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 840.

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Length: 28 pages
Date of creation: Aug 2003
Date of revision:
Handle: RePEc:iza:izadps:dp840

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Related research
Keywords: bargaining; profit sharing; efficiency wages; equilibrium unemployment;

Find related papers by JEL classification:
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bulkley, George & Myles, Gareth D, 1996. "Trade Unions, Efficiency Wages, and Shirking," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 75-88, January. [Downloadable!] (restricted)
  2. Layard, Richard & Nickell, Stephen, 1990. "Is Unemployment Lower if Unions Bargain over Employment?," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 773-87, August. [Downloadable!] (restricted)
    Other versions:
  3. Erkki Koskela & Ronnie Schoeb & Hans-Werner Sinn, 1998. "Pollution, Factor Taxation and Unemployment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Jerger, Jurgen & Michaelis, Jochen, 1999. " Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Blackwell Publishing, vol. 101(2), pages 257-75, June. [Downloadable!] (restricted)
  5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
  6. Nickell, Stephen & Wadhwani, Sushil, 1991. "Employment Determination in British Industry: Investigations Using Micro-data," Review of Economic Studies, Blackwell Publishing, vol. 58(5), pages 955-69, October. [Downloadable!] (restricted)
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  7. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
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  8. Weitzman, Martin L, 1985. "The Simple Macroeconomics of Profit Sharing," American Economic Review, American Economic Association, vol. 75(5), pages 937-53, December. [Downloadable!] (restricted)
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  9. Sanfey, Peter J., 1993. "On the interaction between efficiency wages and union-firm bargaining models," Economics Letters, Elsevier, vol. 41(3), pages 319-324. [Downloadable!] (restricted)
  10. Garino, Gaia & Martin, Christopher, 2000. "Efficiency wages and union-firm bargaining," Economics Letters, Elsevier, vol. 69(2), pages 181-185, November. [Downloadable!] (restricted)
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  11. Layard, R. & Nickell, S., . "Layard-Nickell," Instructional Stata datasets for econometrics layardnickell, Boston College Department of Economics. [Downloadable!]
  12. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  13. Lindbeck, A. & Snower, D.J., 1990. "Interactions between the Efficiency Wage and Insider- Outsider Theories," Papers 474, Stockholm - International Economic Studies.
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  14. Hendricks, Wallace E & Kahn, Lawrence M, 1991. "Efficiency Wages, Monopoly Unions and Efficient Bargaining," Economic Journal, Royal Economic Society, vol. 101(408), pages 1149-62, September. [Downloadable!] (restricted)
  15. Cahuc, Pierre & Dormont, Brigitte, 1997. "Profit-sharing: Does it increase productivity and employment? A theoretical model and empirical evidence on French micro data," Labour Economics, Elsevier, vol. 4(3), pages 293-319, September. [Downloadable!] (restricted)
    Other versions:
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