Strategic Outsourcing, Profit Sharing and Equilibrium Unemployment

Erkki Koskela and Jan König ()
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Jan König: Free University of Berlin

No 3413, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We analyze the following questions associated with outsourcing and profit sharing under imperfect labour markets. How does strategic outsourcing influence wage formation, profit sharing and employee effort when firms commit to optimal profit sharing before wage formation or decide for profit sharing after wage formation? What is the relationship between outsourcing, profit sharing, and equilibrium unemployment when profit sharing is also a part of a compensation scheme in all industries? We find that if firms will decide on profit sharing before the wage formation, higher outsourcing decreases wage whereas profit sharing has an ambiguous effect. Under flexible profit sharing wage is smaller than in the case of committed profit sharing. For equilibrium unemployment, we find that if there is also profit sharing in other industries, the effects of outsourcing and profit sharing on the unemployment rate is ambiguous both in the committed and flexible case.

Keywords: outsourcing; profit sharing; labour market imperfection; employee effort; equilibrium unemployment (search for similar items in EconPapers)
JEL-codes: E23 E24 J23 J33 J82 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2008-03
New Economics Papers: this item is included in nep-bec, nep-cse, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Strategic Outsourcing, Profit Sharing and Equilibrium Unemployment (2007)
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