Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment

Erkki Koskela and Rune Stenbacka ()
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Rune Stenbacka: Swedish School of Economics

No 1020, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing. In a partial equilibrium with exogenous outside options increased bargaining power of banks has adverse employment effects. In a general equilibrium with endogenous outside options this relationship is frequently reversed; reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections – measured by the bargaining power of trade unions - are sufficiently strong and benefit-replacement ratio high enough. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.

Keywords: equilibrium unemployment; compensation systems; wage and loan bargaining; outside options (search for similar items in EconPapers)
JEL-codes: G32 J41 J51 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2004-02
New Economics Papers: this item is included in nep-mac and nep-mfd
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Citations: View citations in EconPapers (11)

Published - published in: Scandinavian Journal of Economics, 2004, 106 (4), 677-701

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Journal Article: Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment* (2004)
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