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Profit Sharing and Relative Consumption

Author

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  • Laszlo Goerke

    () (Institute for Labour Law and Industrial Relations in the EU, University of Trier)

Abstract

Traditionally, it has been argued that profit sharing can increase employment and welfare because it lowers marginal labour costs without reducing total cost or labour income. In this paper, we show that profit sharing can also represent a Pareto-improvement if labour supply is excessive due to relative consumption effects. Mandatory profit sharing reduces wages. If the rise in profit income keeps total income constant, profit sharing will have no income but only a substitution effect. Since labour supply is excessive, profit sharing constitutes a Paretoimprovement.

Suggested Citation

  • Laszlo Goerke, 2012. "Profit Sharing and Relative Consumption," IAAEU Discussion Papers 201202, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  • Handle: RePEc:iaa:dpaper:201202
    as

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    References listed on IDEAS

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    1. Michaelis, Jochen, 1997. "On the equivalence of profit and revenue sharing," Economics Letters, Elsevier, vol. 57(1), pages 113-118, November.
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    4. Jerger, Jurgen & Michaelis, Jochen, 1999. " Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(2), pages 257-275, June.
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    7. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
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    11. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
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    Cited by:

    1. Goerke, Laszlo & Pannenberg, Markus, 2015. "Trade union membership and sickness absence: Evidence from a sick pay reform," Labour Economics, Elsevier, vol. 33(C), pages 13-25.

    More about this item

    Keywords

    Labour supply; Profit sharing; Relative consumption; Status concerns;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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