Equilibrium Unemployment Under Negotiated Profit Sharing

28 Pages Posted: 19 Aug 2003

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: August 2003

Abstract

We study employment, employee effort, wages and profit sharing when firms face stochastic revenue shocks and when base wages and profit shares are determined through negotiations. The negotiated profit share depends positively on the relative bargaining power of the trade union and it has effort-enhancing and wage-moderating effects. We show that higher profit sharing reduces equilibrium unemployment under circumstances with sufficiently "rigid" labour market institutions, i.e. sufficiently high benefit-replacement ratios and relative bargaining powers of trade unions. Conversely, profit sharing seems to be destructive from the point of view of employment when the labour market "rigidities" are sufficiently small.

Keywords: bargaining, profit sharing, efficiency wages, equilibrium unemployment

JEL Classification: J51, J41, G32

Suggested Citation

Koskela, Erkki and Stenbacka, Rune, Equilibrium Unemployment Under Negotiated Profit Sharing (August 2003). IZA Discussion Paper No. 840; Bank of Finland Discussion Paper No. 19/2003. Available at SSRN: https://ssrn.com/abstract=435100

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

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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