Profit Sharing, Wage Formation and Flexible Outsourcing under Labor Market Imperfection

29 Pages Posted: 1 Feb 2010

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 2010

Abstract

We combine profit sharing and outsourcing, if the wage for worker is decided by a labor union to analyze how does the implementation of profit sharing affect individual effort and the bargained wage and thus outsourcing? We find that profit sharing and the wage level have an individual effort-augmenting effect and therefore increase productivity. We also find that the wage effect of profit sharing is ambiguous. There is a wage decreasing substitution effect, but on the other hand, there is a wage increasing effect via labor demand elasticity so that outsourcing and employment effects are also ambiguous.

Keywords: flexible outsourcing, profit sharing, employee effort, labor market imperfection

JEL Classification: E23, E24, J23, J33, J82

Suggested Citation

Koskela, Erkki and Koenig, Jan, Profit Sharing, Wage Formation and Flexible Outsourcing under Labor Market Imperfection (January 2010). CESifo Working Paper Series No. 2925. Available at SSRN: https://ssrn.com/abstract=1545723

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)

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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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