Equilibrium Unemployment Under Negotiated Profit Sharing

Erkki Koskela and Rune Stenbacka (rune.stenbacka@shh.fi)
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Rune Stenbacka: Swedish School of Economics

No 840, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 negotiations. The negotiated profit share depends positively on the relative bargaining power of the trade union and it has effort-enhancing and wage-moderating effects. We show that higher profit sharing reduces equilibrium unemployment under circumstances with sufficiently ‘rigid’ labour market institutions, i.e. 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: efficiency wages; profit sharing; bargaining; equilibrium unemployment (search for similar items in EconPapers)
JEL-codes: G32 J41 J51 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2003-08
New Economics Papers: this item is included in nep-dge and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published - published in: Journal of Economics, 87(2), 2006, 159-180

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Related works:
Working Paper: Equilibrium unemployment under negotiated profit sharing (2004)
Working Paper: Equilibrium unemployment under negotiated profit sharing (2003)
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