Abstract

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The Role of Profit Sharing in a Dual Labour Market with Flexible Outsourcing


Erkki Koskela


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)

Jan Koenig


Free University of Berlin (FUB)

January 2009

CESifo Working Paper Series No. 2533

Abstract:     
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, J82

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Date posted: February 2, 2009  

Suggested Citation

Koskela, Erkki and Koenig, Jan, The Role of Profit Sharing in a Dual Labour Market with Flexible Outsourcing (January 2009). CESifo Working Paper Series No. 2533. Available at SSRN: http://ssrn.com/abstract=1336499

Contact Information

Erkki Koskela (Contact Author)
University of Helsinki - Department of Political and Economic Studies ( email )
P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)
HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.CESifo.de
Bank of Finland - Research Department ( email )
P.O. Box 160
FIN-00101 Helsinki
Finland
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Jan Koenig
Free University of Berlin (FUB) ( email )
Kaiserswerther Str. 16-18
Berlin, Berlin 14195
Germany
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