The Role of Profit Sharing in a Dual Labour Market with Flexible Outsourcing
University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; Institute for the Study of Labor (IZA)
Free University of Berlin (FUB)
CESifo Working Paper Series No. 2533
We analyze the following questions associated with flexible outsourcing under partly imperfect dual domestic labour markets, where high skilled workers participate in firm's profit via profit sharing: How does the implementation of profit sharing influence flexible outsourcing? What is the relationship between outsourcing cost, profit sharing and wages? We show that profit sharing has a positive effect on low skilled wage and thus an outsourcing enhancing character. The wages of both types of labour are negatively correlated and lower outsourcing cost can increase the wage dispersion by decreasing the low skilled wage and raising the high skilled wage. The overall effect of profit sharing on high skilled wage is ambiguous due to a positive direct effect and a negative indirect effect via the low skilled wage.
Number of Pages in PDF File: 33
Keywords: flexible outsourcing, dual labour market, profit sharing, labour market imperfection, employee effort
JEL Classification: E23, E24, H22, J23, J51, J82working papers series
Date posted: February 2, 2009
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