Capital Structure, Wage Bargaining and Employment

42 Pages Posted: 7 Feb 2001

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

Rune Stenbacka

Hanken School of Economics

Date Written: March 2000

Abstract

We offer a unified framework to analyze the determination of employment, employee effort, wages, profit-sharing and capital structure when firms face stochastic revenue shocks. We apply a generalized Nash bargaining solution, which extends the wage bargaining literature by incorporating efficiency wage considerations, profit-sharing and capital structure. The profit-sharing instrument is demonstrated to have positive effort-augmenting and wage-moderating effects, which exactly offset the negative dilution effect in equilibrium. Leverage is shown to decrease employment and to have a strategic commitment value as a wage-moderating effect for firms facing unions in bilateral wage negotiations. Finally, some implications for equilibrium unemployment are characterized.

Keywords: Wage bargaining, profit sharing, capital structure, employment

JEL Classification: J51, J41, G32

Suggested Citation

Koskela, Erkki and Stenbacka, Rune, Capital Structure, Wage Bargaining and Employment (March 2000). Bank of Finland Discussion Papers 16/2000, CESifo Working paper Series No. 275. Available at SSRN: https://ssrn.com/abstract=256542

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

IZA Institute of Labor Economics

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

Rune Stenbacka

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland
+35 89 4313 3433 (Phone)
+35 89 4313 3382 (Fax)

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