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

33 Pages Posted: 2 Feb 2009

See all articles by Erkki Koskela

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Jan Koenig

Free University of Berlin (FUB)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2009

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.

Keywords: flexible outsourcing, dual labour market, profit sharing, labour market imperfection, employee effort

JEL Classification: E23, E24, H22, J23, J51, J82

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: https://ssrn.com/abstract=1336499

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)
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jan Koenig

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

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