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Efficiency wages and negotiated profit-sharing under uncertainty

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  • Göcke, Matthias

Abstract

Efficiency wage effects of profit sharing are combined with option values related to stochastic future pofit variations. These option effects occur if the workers' profit share is fixed by long-term contracts. The Pareto-improving optimal level of the sharing ratio is calculated for two different scenarios. First, if the firm can unilaterally decide, the expected present value of net profits is maximised. Second, if the sharing ratio is based on bilateral Nash bargaining. Since a larger variation of revenues implies a higher redistribution of future profits, the inclusion of expected variations results in a lower worker's profit ratio in both scenarios.

Suggested Citation

  • Göcke, Matthias, 2009. "Efficiency wages and negotiated profit-sharing under uncertainty," Discussion Papers 42, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
    • Handle: RePEc:zbw:zeudps:42
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    References listed on IDEAS

    as
    1. Sessions, John G., 2008. "Wages, supervision and sharing," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(4), pages 653-672, November.
    2. Erkki Koskela & Rune Stenbacka, 2004. "Profit Sharing and Unemployment: An Approach with Bargaining and Efficiency-Wage Effects," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(3), pages 477-477, September.
    3. Kruse, Douglas L, 1992. "Profit Sharing and Productivity: Microeconomic Evidence from the United States," Economic Journal, Royal Economic Society, vol. 102(410), pages 24-36, January.
    4. Juin-Jen Chang, 2006. "Profit Sharing, Risk Sharing, and Firm Size: Implications of Efficiency Wages," Small Business Economics, Springer, vol. 27(2), pages 261-273, October.
    5. Wadhwani, Sushil & Wall, Martin, 1990. "The Effects of Profit-Sharing on Employment, Wages, Stock Returns and Productivity: Evidence from UK Micro-data," Economic Journal, Royal Economic Society, vol. 100(399), pages 1-17, March.
    6. Lin, Chung-cheng & Chang, Juin-jen & Lai, Ching-chong, 2002. "Profit sharing as a worker discipline device," Economic Modelling, Elsevier, vol. 19(5), pages 815-828, November.
    7. Sanfey, Peter J., 1993. "On the interaction between efficiency wages and union-firm bargaining models," Economics Letters, Elsevier, vol. 41(3), pages 319-324.
    8. Simon P. Anderson & Michael Devereux, 1989. "Profit-Sharing and Optimal Labour Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 425-433, May.
    9. Herrmann, Roland & Kramb, Marc & Mönnich, Christina, 2000. "Tariff rate quotas and the economic impacts of agricultural trade liberalization in the WTO," Discussion Papers 1, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
    10. Levine, David, 1987. "Efficiency wages in Weitzman's share economy," Economics Letters, Elsevier, vol. 23(3), pages 245-249.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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