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The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing

  • Koskela, Erkki

    ()

    (University of Helsinki)

  • König, Jan

    ()

    (Free University of Berlin)

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    We combine profit sharing for high-skilled workers and outsourcing of low-skilled tasks in partly imperfect dual domestic labour markets, when the wage rate for low-skilled worker is set by a labor union, to analyze how the implementation of profit sharing influence flexible outsourcing and low-skilled labour market outcome. Profit sharing has a positive effect on the low-skilled wage and thus an outsourcing enhancing character. Profit sharing for high-skilled workers increases the low-skilled wage and helps to decrease the wage dispersion. Concerning the employment effects there is an employment reducing effect due to higher low-skilled wage, which can be offset by the employment increasing effect of higher effort of the high-skilled worker. Therefore, the employment effects of profit sharing are ambiguous.

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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5798.

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    Length: 25 pages
    Date of creation: Jun 2011
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    Handle: RePEc:iza:izadps:dp5798
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