Research Discussion Papers, Bank of Finland
No 19/2003:
Equilibrium unemployment under negotiated profit sharing
Erkki Koskela ()
and Rune Stenbacka ()
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 collective bargaining. The negotiated
profit share depends positively on the relative bargaining power of the
trade union and has effort-enhancing and wage-moderating effects. We show
that higher profit sharing reduces equilibrium unemployment under
circumstances with sufficiently ‘rigid’ labour market institutions, ie
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: wage bargaining; profit sharing; efficiency wages; equilibrium unemployment; (follow links to similar papers)
JEL-Codes: G32; J41; J51; (follow links to similar papers)
32 pages, August 13, 2003
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