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The Role of Profit Sharing in a Dual Labour Market with Flexible Outsourcing

  • Erkki Koskela
  • Jan König
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    We analyze the following questions associated with flexible outsourcing under partly imperfect dual domestic labour markets, where high skilled workers participate in firm’s profit via profit sharing: How does the implementation of profit sharing influence flexible outsourcing? What is the relationship between outsourcing cost, profit sharing and wages? We show that profit sharing has a positive effect on low skilled wage and thus an outsourcing enhancing character. The wages of both types of labour are negatively correlated and lower outsourcing cost can increase the wage dispersion by decreasing the low skilled wage and raising the high skilled wage. The overall effect of profit sharing on high skilled wage is ambiguous due to a positive direct effect and a negative indirect effect via the low skilled wage.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-01/cesifo1_wp2533.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2533.

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    Date of creation: 2009
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    Handle: RePEc:ces:ceswps:_2533
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    1. Munch, Jakob Roland & Skaksen, Jan Rose, 2006. "Specialization, Outsourcing and Wages," Working Papers 19-2005, Copenhagen Business School, Department of Economics.
    2. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2003. "Trade Reforms, Labor Regulations and Labor-Demand Elasticities: Empirical Evidence from India," NBER Working Papers 9879, National Bureau of Economic Research, Inc.
    3. Mine Zeynep Senses, 2006. "The Effects of Outsourcing on the Elasticity of Labor Demand," Working Papers 06-07, Center for Economic Studies, U.S. Census Bureau.
    4. Rebecca Riley & Garry Young, 2007. "Skill heterogeneity and equilibrium unemployment," Oxford Economic Papers, Oxford University Press, vol. 59(4), pages 702-725, October.
    5. Erkki Koskela & Panu Poutvaara, 2008. "Outsourcing and Labor Taxation in Dual Labor Markets," CESifo Working Paper Series 2333, CESifo Group Munich.
    6. Sebastian Braun & Juliane Scheffel, 2007. "Does International Outsourcing Depress Union Wages?," SFB 649 Discussion Papers SFB649DP2007-033, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    7. Hartmut Egger & Peter Egger, . "International Outsourcing and the Productivity of Low-skilled Labour in the EU," WIFO Working Papers 152, WIFO.
    8. Erkki Koskela & Rune Stenbacka, 2007. "Equilibrium Unemployment with Outsourcing under Labour Market Imperfections," CESifo Working Paper Series 1892, CESifo Group Munich.
    9. Immervoll, Herwig & Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2004. "Welfare Reform in European Countries: A Micro-Simulation Analysis," CEPR Discussion Papers 4324, C.E.P.R. Discussion Papers.
    10. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
    11. Davidson, Carl & Matusz, Steven J. & Nelson, Douglas R., 2007. "Can compensation save free trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 167-186, March.
    12. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Globalization and firm level adjustment with imperfect labor markets," Journal of International Economics, Elsevier, vol. 75(2), pages 295-309, July.
    13. Erkki Koskela & Panu Poutvaara, 2008. "Flexible Outsourcing and the Impacts of Labour Taxation in European Welfare States," CESifo Working Paper Series 2440, CESifo Group Munich.
    14. Meenakshi Rishi & Sweta C. Saxena, 2005. "Is Outsourcing Really As Bad As It Is Made To Sound? A Re- Assessment And Some Perspective," Macroeconomics 0508009, EconWPA.
    15. Hijzen, Alexander & Görg, Holger & Hine, Robert C., 2004. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," IZA Discussion Papers 1249, Institute for the Study of Labor (IZA).
    16. Erkki Koskela & Rune Stenbacka, 2006. "Flexible and Committed Profit Sharing with Wage Bargaining: Implications for Equilibrium Unemployment," Journal of Economics, Springer, vol. 87(2), pages 159-180, 03.
    17. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
    18. Martin J. Conyon & Richard Freeman, 2002. "Shared Modes of Compensation and Firm Performance: UK Evidence," CEP Discussion Papers dp0560, Centre for Economic Performance, LSE.
    19. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2006. "Can deunionization lead to international outsourcing?
      [Führt der Rückzug der Gewerkschaften zur internationalen Auslagerung von Arbeitsplätzen?]
      ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2006-23, Social Science Research Center Berlin (WZB).
    20. Wadhwani, S. & Wall, M., 1988. "The Effects Of Profit-Sharing On Employment, Wages, Stock Returns And Productivity: Evidence From Uk Micro-Data," Papers 311, London School of Economics - Centre for Labour Economics.
    21. Erkki Koskela & Jan König, 2008. "Flexible Outsourcing, Profit Sharing and Equilibrium Unemployment," CESifo Working Paper Series 2382, CESifo Group Munich.
    22. Mary Amiti & Shang-Jin Wei, 2004. "Fear of Service Outsourcing: Is it Justified?," IMF Working Papers 04/186, International Monetary Fund.
    23. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact Of Outsourcing And High-Technology Capital On Wages: Estimates For The United States, 1979-1990," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 907-940, August.
    24. Alexander Hijzen, 2007. "International Outsourcing, Technological Change, and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 188-205, 02.
    25. Jan Rose Skaksen, 2004. "International outsourcing when labour markets are unionized," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 78-94, February.
    26. Erkki Koskela & Rune Stenbacka, 2007. "Equilibrium Unemployment with Outsourcing and Wage Solidarity under Labour Market Imperfections," CESifo Working Paper Series 1988, CESifo Group Munich.
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