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Public Profit Sharing

  • Schob, Ronnie

Many countries suffer from persistently high unemployment rates. The scope for labour market reforms is often limited to measures that hurt neither shareholders nor workers. This paper develops a policy proposal, which allows the government to reduce wage costs without changing the income positions as determined in the process of wage negotiations. It is shown that the introduction of public profit sharing, i.e., substituting profit shares for social security contributions, can boost employment both in the short run and the long run. Calibrating the model and comparing the results with recent empirical findings about the impact of labour taxation confirm the theoretical findings. Copyright 2002 by WWZ and Helbing & Lichtenhahn Verlag AG

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Article provided by Wiley Blackwell in its journal Kyklos.

Volume (Year): 55 (2002)
Issue (Month): 4 ()
Pages: 523-41

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Handle: RePEc:bla:kyklos:v:55:y:2002:i:4:p:523-41
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  1. Agell, Jonas, 1998. "On the Benefits from Rigid Labour Markets: Norms, Market Failures, and Social Insurance," Working Paper Series 1998:17, Uppsala University, Department of Economics.
  2. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  3. Orszag, Mike & Snower, Dennis J., 1999. "Anatomy of Policy Complementarities," IZA Discussion Papers 41, Institute for the Study of Labor (IZA).
  4. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  5. Holmlund, B., 1988. "Profit Sharing, Wage Bargaining, And Unemployment," Papers 1988l, Uppsala - Working Paper Series.
  6. Weitzman, Martin L, 1983. "Some Macroeconomic Implications of Alternative Compensation Systems," Economic Journal, Royal Economic Society, vol. 93(372), pages 763-83, December.
  7. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  8. Agell, Jonas, 2000. "On the Determinants of Labour Market Institutions: Rent-sharing vs. Social Insurance," Working Paper Series 2000:16, Uppsala University, Department of Economics.
  9. Eaton, B Curtis & Lipsey, Richard G, 1978. "Freedom of Entry and the Existence of Pure Profit," Economic Journal, Royal Economic Society, vol. 88(351), pages 455-69, September.
  10. Simon P. Anderson & Michael Devereux, 1989. "Profit-Sharing and Optimal Labour Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 425-33, May.
  11. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  12. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  13. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
  14. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  15. Martin L. Weitzman, 1984. "The Simple Macroeconomics of Profit Sharing," Working papers 357, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Oswald, A. J., 1995. "Efficient contracts are on the labour demand curve: Theory and facts," Labour Economics, Elsevier, vol. 2(1), pages 102-102, March.
  17. 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.
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