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The Fixed Wage Puzzle: Why Profit Sharing Is So Hard to Implement

Author

Listed:
  • Jürgen Jerger

    () (University of Regensburg and Osteuropa-Institut Regensburg)

  • Jochen Michaelis

    () (University of Kassel)

Abstract

It is well known that profit sharing arrangements Pareto-dominate fixed wage contracts. Share agreements are (far) less than ubiquitous, however. This paper offers a solution of this "fixed wage puzzle“ by adopting a perspective of bounded rationality. We show that share arrangements that fulfill ”plausible“ constraints are not generally acceptable to both firms and unions.

Suggested Citation

  • Jürgen Jerger & Jochen Michaelis, 2010. "The Fixed Wage Puzzle: Why Profit Sharing Is So Hard to Implement," MAGKS Papers on Economics 201013, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201013
    as

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/13-2010_jerger.pdf
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    References listed on IDEAS

    as
    1. Michaelis, Jochen, 1997. "On the equivalence of profit and revenue sharing," Economics Letters, Elsevier, vol. 57(1), pages 113-118, November.
    2. 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, March.
    3. Benjamin Bental & Dominique Demougin, 2006. "Incentive Contracts And Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 1033-1055, August.
    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.
    5. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Juergen Schupp & Gert Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," Working Papers 2096, The Field Experiments Website.
    6. Carruth, Alan A & Oswald, Andrew J, 1985. "Miners' Wages in Post-war Britain: An Application of a Model of Trade Union Behaviour," Economic Journal, Royal Economic Society, vol. 95(380), pages 1003-1020, December.
    7. Richard Watt, 2002. "Defending Expected Utility Theory: Comment," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 227-229, Spring.
    8. Holmlund, Bertil, 1990. "Profit Sharing, Wage Bargaining, and Unemployment," Economic Inquiry, Western Economic Association International, vol. 28(2), pages 257-268, April.
    9. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    10. Farber, Henry S, 1978. "Individual Preferences and Union Wage Determination: The Case of the United Mine Workers," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 923-942, October.
    11. repec:feb:framed:0019 is not listed on IDEAS
    12. Kirstein, Roland & Kirstein, Annette, 2004. "Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies," CSLE Discussion Paper Series 2004-09, Saarland University, CSLE - Center for the Study of Law and Economics.
    13. Maria Brouwer, 2005. "Managing Uncertainty through Profit Sharing Contracts from Medieval Italy to Silicon Valley," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 9(3), pages 237-255, September.
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    Cited by:

    1. Marco Pinto & Jochen Michaelis, 2016. "The labor market effects of trade unions in an open economy: Layard meets Melitz," International Economics and Economic Policy, Springer, vol. 13(2), pages 223-232, April.
    2. Gilberto Tadeu Lima & Jaylson Jair da Silveira, 2018. "Macrodynamic Implications of Employee Profit Sharing as Effort Elicitation Device," Working Papers, Department of Economics 2018_02, University of São Paulo (FEA-USP).

    More about this item

    Keywords

    Profit Sharing; Share Economy; Remuneration Systems;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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