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Equilibrium unemployment under negotiated profit sharing

Author

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  • Erkki Koskela

    (Department of Economics,University of Helsinki)

  • Rune Stenbacka

    (Swedish School of Economics, Helsinki)

Abstract

We study employment, employee effort, wages and profit sharing when firms face stochastic revenue shocks and when base wages and profit shares are determined through collective bargaining. The negotiated profit share depends positively on the relative bargaining power of the trade union and has effort-enhancing and wage-moderating effects. We show that higher profit sharing reduces equilibrium unemployment under circumstances with sufficiently ‘rigid’ labour market institutions, ie sufficiently high benefit- replacement ratios and relative bargaining powers of trade unions. Conversely, profit sharing seems to be destructive from the point of view of employment when the labour market ‘rigidities’ are sufficiently small

Suggested Citation

  • Erkki Koskela & Rune Stenbacka, 2004. "Equilibrium unemployment under negotiated profit sharing," Labor and Demography 0404009, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpla:0404009
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    wage bargaining; profit sharing; efficiency wages; equilibrium unemployment;

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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