Capital Structure, Wage Bargaining and Employment

Erkki Koskela and Rune Stenbacka

No 275, CESifo Working Paper Series from CESifo

Abstract: We offer a unified framework to analyze the determination of employment, employee effort, wages, profit-sharing and capital structure when firms face stochastic revenue shocks. We apply a generalized Nash bargaining solution, which extends the wage bargaining literature by incorporating efficiency wage considerations, profit-sharing and capital structure. The profit-sharing instrument is demonstrated to have positive effort-augmenting and wage-moderating effects, which exactly offset the negative dilution effect in equilibrium. Leverage is shown to decrease employment and to have a strategic commitment value as a wage-moderating effect for firms facing unions in bilateral wage negotiations. Finally, some implications for equilibrium unemployment are characterized.

Keywords: Wage bargaining; profit sharing; capital structure; employment (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Capital Structure, Wage Bargaining and Employment (2000)
Working Paper: Capital structure, wage bargaining and employment (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_275

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