Equilibrium unemployment under negotiated profit sharing

Erkki Koskela and Rune Stenbacka
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Erkki Koskela: Department of Economics,University of Helsinki
Rune Stenbacka: Swedish School of Economics, Helsinki

Labor and Demography from EconWPA

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

Keywords: wage bargaining; profit sharing; efficiency wages; equilibrium unemployment (search for similar items in EconPapers)
JEL-codes: J51 J41 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-reg
Date: 2004-04-29
Note: Type of Document - pdf
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpla:0404009

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