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Profit Sharing, Wage Formation and Flexible Outsourcing under Labor Market Imperfection

  • Koskela, Erkki

    ()

    (University of Helsinki)

  • König, Jan

    ()

    (Free University of Berlin)

Registered author(s):

    We combine profit sharing and outsourcing, if the wage for worker is decided by a labor union to analyze how does the implementation of profit sharing affect individual effort and the bargained wage and thus outsourcing? We find that profit sharing and the wage level have an individual effort-augmenting effect and therefore increase productivity. We also find that the wage effect of profit sharing is ambiguous. There is a wage decreasing substitution effect, but on the other hand, there is a wage increasing effect via labor demand elasticity so that outsourcing and employment effects are also ambiguous.

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    File URL: http://ftp.iza.org/dp4707.pdf
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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4707.

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    Length: 26 pages
    Date of creation: Jan 2010
    Date of revision:
    Publication status: published in: Review of International Economics, 2012, 20 (1), 18 - 28
    Handle: RePEc:iza:izadps:dp4707
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    1. 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.
    2. Jakob Munch & Jan Skaksen, 2009. "Specialization, outsourcing and wages," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(1), pages 57-73, April.
    3. Martin J. Conyon & Richard B. Freeman, 2001. "Shared Modes of Compensation and Firm Performance: UK Evidence," NBER Working Papers 8448, National Bureau of Economic Research, Inc.
    4. Alexander Hijzen & Holger Görg & Robert C. Hine, 2004. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," Discussion Papers of DIW Berlin 437, DIW Berlin, German Institute for Economic Research.
    5. Jellal, Mohamed & Zenou, Yves, 2000. "A dynamic efficiency wage model with learning by doing," MPRA Paper 38513, University Library of Munich, Germany.
    6. Mary Amiti & Shang-Jin Wei, 2004. "Fear of Service Outsourcing; Is it Justified?," IMF Working Papers 04/186, International Monetary Fund.
    7. Hartmut Egger & Peter Egger, 2006. "International Outsourcing and the Productivity of Low-Skilled Labor in the EU," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 98-108, January.
    8. Booth, Alison L & Frank, Jeff, 1999. "Earnings, Productivity, and Performance-Related Pay," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 447-63, July.
    9. Stefanova Boyka M, 2006. "The Political Economy of Outsourcing in the European Union and the East-European Enlargement," Business and Politics, De Gruyter, vol. 8(2), pages 1-45, August.
    10. David Card & Richard Blundell & Richard B. Freeman, 2004. "Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000," NBER Books, National Bureau of Economic Research, Inc, number card04-1.
    11. Douglas L. Kruse, 1993. "Does Profit Sharing Affect Productivity?," NBER Working Papers 4542, National Bureau of Economic Research, Inc.
    12. Erkki Koskela & Jan König, 2009. "Can Profit Sharing Lower Flexible Outsourcing? A Note," CESifo Working Paper Series 2606, CESifo Group Munich.
    13. Ingo Geishecker & Holger Görg, 2008. "Winners and losers: a micro-level analysis of international outsourcing and wages," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 243-270, February.
    14. Gorg, Holger & Hanley, Aoife, 2005. "Labour demand effects of international outsourcing: Evidence from plant-level data," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 365-376.
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