Profit Sharing and Outsourcing Under Labor Market Imperfection

11 Pages Posted: 17 Jan 2012

See all articles by Jan König

Jan König

affiliation not provided to SSRN

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

Date Written: February 2012

Abstract

When the wage rate is set by the labor union, profit sharing and outsourcing is combined in this paper to analyze how the implementation of profit sharing affects individual effort and wage and thus outsourcing. The findings show that profit sharing and wage have an individual effort‐augmenting effect and therefore increase productivity. It is also found that the wage effect of profit sharing in general is ambiguous. There is a wage decreasing substitution effect, but in contrast, there is a wage increasing effect via labor demand elasticity and effort so that outsourcing and employment effects are also ambiguous. Furthermore, it is shown under which condition a firm will implement a profit sharing scheme.

Suggested Citation

König, Jan and Koskela, Erkki, Profit Sharing and Outsourcing Under Labor Market Imperfection (February 2012). Review of International Economics, Vol. 20, Issue 1, pp. 18-28, 2012. Available at SSRN: https://ssrn.com/abstract=1986585 or http://dx.doi.org/10.1111/j.1467-9396.2011.01004.x

Jan König (Contact Author)

affiliation not provided to SSRN

No Address Available

Erkki Koskela

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

IZA Institute of Labor Economics

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

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