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The relationship between product market competition and unemployment with profit sharing

  • Koskela, Erkki
  • Stenbacka, Rune
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    We investigate the implications of product market imperfections on negotiated wages and equilibrium unemployment under profit sharing. We show that intensified product market competition reduces equilibrium unemployment in a strictly monotonic way when the trade union's bargaining power exceeds the profit share. If the profit share exceeds the trade union's bargaining power, the effect of product market competition is ambiguous: there is a threshold for the benefit–replacement ratio above (below) which intensified product market competition increases (decreases) equilibrium unemployment. The profit share and the union's bargaining power affect the wage mark-up, and thereby equilibrium unemployment, in different directions.

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    Article provided by Elsevier in its journal Labour Economics.

    Volume (Year): 19 (2012)
    Issue (Month): 3 ()
    Pages: 291-297

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    Handle: RePEc:eee:labeco:v:19:y:2012:i:3:p:291-297
    DOI: 10.1016/j.labeco.2012.02.003
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