Profit-Shares, Bargaining, and Unemployment

Christophre Georges ()

Economic Inquiry, 1998, vol. 36, issue 2, 286-91

Abstract: This paper considers the effect of profit sharing on unemployment in a simple model with an employment externality, overhead costs, and free entry. When wages are determined by Nash bargains and employment is set by firms, equilibrium unemployment is unambiguously reduced by mandated profit sharing. However, a bargained profit share may have the perverse effect of lowering both employment and compensation in general equilibrium. If overhead costs relevant to firms' entry decisions are excluded from the profit share accounting, then a mandated profit share may also have such a perverse effect. Copyright 1998 by Oxford University Press.

Date: 1998
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