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The Fixed Wage Puzzle: Why Profit Sharing Is So Hard to Implement

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  • Jürgen Jerger

    ()
    (University of Regensburg and Osteuropa-Institut Regensburg)

  • Jochen Michaelis

    ()
    (University of Kassel)

Abstract

It is well known that profit sharing arrangements Pareto-dominate fixed wage contracts. Share agreements are (far) less than ubiquitous, however. This paper offers a solution of this "fixed wage puzzle“ by adopting a perspective of bounded rationality. We show that share arrangements that fulfill ”plausible“ constraints are not generally acceptable to both firms and unions.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/13-2010_jerger.pdf
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201013.

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Length: 12 pages
Date of creation: 2010
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201013

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Keywords: Profit Sharing; Share Economy; Remuneration Systems;

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  1. Benjamin Bental & Dominique Demougin, 2006. "Incentive Contracts And Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 1033-1055, 08.
  2. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  3. 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.
  4. Richard Watt, 2002. "Defending Expected Utility Theory: Comment," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 227-229, Spring.
  5. Michaelis, Jochen, 1997. "On the equivalence of profit and revenue sharing," Economics Letters, Elsevier, vol. 57(1), pages 113-118, November.
  6. Kirstein, Roland & Kirstein, Annette, 2004. "Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies," CSLE Discussion Paper Series 2004-09, Saarland University, CSLE - Center for the Study of Law and Economics.
  7. Holmlund, Bertil, 1990. "Profit Sharing, Wage Bargaining, and Unemployment," Economic Inquiry, Western Economic Association International, vol. 28(2), pages 257-68, April.
  8. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jurgen Schupp & Gert Wagner, 2005. "Individual risk attitudes: New evidence from a large, representative, experimentally-validated survey," Framed Field Experiments 00140, The Field Experiments Website.
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  10. Farber, Henry S, 1978. "Individual Preferences and Union Wage Determination: The Case of the United Mine Workers," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 923-42, October.
  11. Maria Brouwer, 2005. "Managing Uncertainty through Profit Sharing Contracts from Medieval Italy to Silicon Valley," Journal of Management and Governance, Springer, vol. 9(3), pages 237-255, 09.
  12. Jerger, Jurgen & Michaelis, Jochen, 1999. " Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(2), pages 257-75, June.
  13. Alan Carruth & Andrew Oswald, 1984. "Miners' Wages in Post-War Britain: An Application of a Model of Trade Union Behavior," Working Papers 558, Princeton University, Department of Economics, Industrial Relations Section..
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