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Public Profit Sharing

Many countries suffer from persistently high unemployment rates. The scope for labour market reforms is often limited to measures that hurt neither shareholders nor workers. This paper develops a policy proposal, which allows the government to reduce wage costs without changing the income positions as determined in the process of wage negotiations. It is shown that the introduction of public profit sharing, i.e. substituting profit share for social security contributions, can boost employment both in the short run and the long run. Calibrating the model and comparing the results with recent empirical findings about the impact of labour taxation confirm the theoretical findings.

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Paper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 20012.

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Date of creation: May 2001
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Handle: RePEc:uwo:uwowop:20012
Contact details of provider: Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html

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  1. Oswald, A. J., 1995. "Efficient contracts are on the labour demand curve: Theory and facts," Labour Economics, Elsevier, vol. 2(1), pages 102-102, March.
  2. Orszag, J. Michael & Snower, Dennis J., 1998. "Anatomy of Policy Complementarities," Working Paper Series 500, Research Institute of Industrial Economics.
  3. Agell, Jonas, 2000. "On the Determinants of Labour Market Institutions: Rent-sharing vs. Social Insurance," Working Paper Series 2000:16, Uppsala University, Department of Economics.
  4. Layard, R. & Nickell, S., 1988. "Is Unemployment Lower If Unions Bargain Over Employment?," Papers 308, London School of Economics - Centre for Labour Economics.
  5. Eaton, B Curtis & Lipsey, Richard G, 1978. "Freedom of Entry and the Existence of Pure Profit," Economic Journal, Royal Economic Society, vol. 88(351), pages 455-69, September.
  6. Holmlund, Bertil, 1990. "Profit Sharing, Wage Bargaining, and Unemployment," Economic Inquiry, Western Economic Association International, vol. 28(2), pages 257-68, April.
  7. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  8. Olivier Jean Blanchard & Lawrence Katz, 1999. "Wage Dynamics: Reconciling Theory and Evidence," NBER Working Papers 6924, National Bureau of Economic Research, Inc.
  9. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  10. Agell, J., 1998. "On the Benefits from Rigid Labour Markets: Norms, Market Failures, and Social Insurance," Papers 1998:17, Uppsala - Working Paper Series.
  11. Weitzman, Martin L, 1983. "Some Macroeconomic Implications of Alternative Compensation Systems," Economic Journal, Royal Economic Society, vol. 93(372), pages 763-83, December.
  12. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  13. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  14. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  15. Martin L. Weitzman, 1984. "The Simple Macroeconomics of Profit Sharing," Working papers 357, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Simon P. Anderson & Michael Devereux, 1989. "Profit-Sharing and Optimal Labour Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 425-33, May.
  17. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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