Equilibrium unemployment under negotiated profit sharing

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Equilibrium unemployment under negotiated profit sharing

Author Info

Erkki Koskela (Department of Economics,University of Helsinki)
Rune Stenbacka (Swedish School of Economics, Helsinki)

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 collective bargaining. The negotiated profit share depends positively on the relative bargaining power of the trade union and has effort-enhancing and wage-moderating effects. We show that higher profit sharing reduces equilibrium unemployment under circumstances with sufficiently ‘rigid’ labour market institutions, ie 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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Paper provided by EconWPA in its series Labor and Demography with number 0404009.

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Date of creation: 29 Apr 2004
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Handle: RePEc:wpa:wuwpla:0404009

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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

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-05-02 (All new papers)
NEP-DGE-2004-05-02 (Dynamic General Equilibrium)
NEP-REG-2004-05-02 (Regulation)

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Other versions:
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Other versions:
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