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Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment

  • Koskela, Erkki

    ()

    (University of Helsinki)

  • Stenbacka, Rune

    ()

    (Swedish School of Economics)

Registered author(s):

    We investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing. In a partial equilibrium with exogenous outside options increased bargaining power of banks has adverse employment effects. In a general equilibrium with endogenous outside options this relationship is frequently reversed; reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections – measured by the bargaining power of trade unions - are sufficiently strong and benefit-replacement ratio high enough. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.

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    File URL: http://ftp.iza.org/dp1020.pdf
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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1020.

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    Length: 36 pages
    Date of creation: Feb 2004
    Date of revision:
    Publication status: published in: Scandinavian Journal of Economics, 2004, 106 (4), 677-701
    Handle: RePEc:iza:izadps:dp1020
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    15. Ricardo Caballero & Muhammad Hammour, 1998. "Improper Churn: Social Costs and Macroeconomic Consequences," Working papers 98-11, Massachusetts Institute of Technology (MIT), Department of Economics.
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    23. Perotti, Enrico C & Spier, Kathryn E, 1993. "Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation," American Economic Review, American Economic Association, vol. 83(5), pages 1131-41, December.
    24. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, March.
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    26. Bester, Helmut, 1995. "A bargaining model of financial intermediation," European Economic Review, Elsevier, vol. 39(2), pages 211-228, February.
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    28. Dasgupta, Sudipto & Sengupta, Kunal, 1993. "Sunk Investment, Bargaining and Choice of Capital Structure," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 203-20, February.
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