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