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Profit Sharing, Wage Bargaining, and Unemployment

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  • Holmlund, Bertil

Abstract

This paper examines the effects of profit sharing in an economy with decentralized wage bargaining. Profit sharing makes workers' income more sensitive to wage changes, and this leads to wage moderation. But economywide profit sharing may also improve workers' outside income opportunities, and this strengthens the union's hand in bargaining and tends to raise wages. It turns out that equilibrium unemployment is reduced by profit sharing as long as the elasticity of substitution between labor and capital is less than one, whereas unemployment is increased if the elasticity of substitution is greater than one. Copyright 1990 by Oxford University Press.

Suggested Citation

  • Holmlund, Bertil, 1990. "Profit Sharing, Wage Bargaining, and Unemployment," Economic Inquiry, Western Economic Association International, vol. 28(2), pages 257-268, April.
  • Handle: RePEc:oup:ecinqu:v:28:y:1990:i:2:p:257-68
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    Cited by:

    1. Schob, Ronnie, 2002. "Public Profit Sharing," Kyklos, Wiley Blackwell, vol. 55(4), pages 523-541.
    2. Jerger, Jürgen & Michaelis, Jochen, 2011. "The fixed wage puzzle: Why profit sharing is so hard to implement," Economics Letters, Elsevier, vol. 110(2), pages 104-106, February.
    3. Bratsiotis, George J., 2008. "Influential price and wage setters, monetary policy and real effects," European Journal of Political Economy, Elsevier, vol. 24(2), pages 503-517, June.
    4. Koskela, Erkki & Stenbacka, Rune, 2003. "Profit Sharing and Unemployment: An Approach with Bargaining and Efficiency Wage Economics," Discussion Papers 863, The Research Institute of the Finnish Economy.
    5. Koskela, Erkki & König, Jan, 2011. "The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing," IZA Discussion Papers 5798, Institute for the Study of Labor (IZA).
    6. Erkki Koskela & Rune Stenbacka, 2002. "Equilibrium Unemployment and Credit Market Imperfections: The Critical Role of Labour Mobility," CESifo Working Paper Series 654, CESifo Group Munich.
    7. Rupayan Pal & Bibhas Saha, 2016. "Entry Threats and Inefficiency in ‘Efficient Bargaining’," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(3), pages 258-277, July.
    8. Jan König & Erkki Koskela, 2011. "Does International Outsourcing Really Lower Workers’ Income?," Journal of Labor Research, Springer, vol. 32(1), pages 21-38, March.
    9. Koskela, Erkki & Stenbacka, Rune, 2004. "Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment," IZA Discussion Papers 1020, Institute for the Study of Labor (IZA).
    10. repec:bla:labour:v:31:y:2017:i:2:p:153-173 is not listed on IDEAS
    11. Erkki Koskela & Rune Stenbacka, 2004. "Equilibrium unemployment under negotiated profit sharing," Labor and Demography 0404009, University Library of Munich, Germany.

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