Product Market Competition, Profit Sharing and Equilibrium Unemployment

Erkki Koskela and Rune Stenbacka

No 1603, CESifo Working Paper Series from CESifo

Abstract: We investigate the implications of product market imperfections on profit sharing, wage negotiation and equilibrium unemployment. The optimal profit share, which the firms use as a wage-moderating commitment device, is below the bargaining power of the trade union. Intensified product market competition decreases profit sharing, but increases the negotiated base wage, because the wage-increasing effect of reduced profit sharing dominates the wage-reducing effect associated with a higher wage elasticity of labor demand. Finally, we show that intensified product market competition does not necessarily reduce equilibrium unemployment, because it induces both higher wage mark-ups and lower optimal profit shares.

Keywords: product market competition; profit sharing; wage bargaining; equilibrium unemployment (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-bec, nep-com, nep-int, nep-lab and nep-mic
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1603

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