Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment

36 Pages Posted: 2 Sep 2004

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

Multiple version iconThere are 2 versions of this paper

Date Written: February 2004

Abstract

We investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing. In a partial equilibrium with exogenous outside options increased bargaining power of banks has adverse employment effects. In a general equilibrium with endogenous outside options this relationship is frequently reversed; reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections - measured by the bargaining power of trade unions - are sufficiently strong and benefit-replacement ratio high enough. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.

Keywords: wage and loan bargaining, compensation systems, equilibrium unemployment, outside options

JEL Classification: J51, J41, G32

Suggested Citation

Koskela, Erkki and Stenbacka, Rune, Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment (February 2004). IZA Discussion Paper No. 1020. Available at SSRN: https://ssrn.com/abstract=508542

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

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FIN-00014 Helsinki
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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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Bank of Finland - Research Department ( email )

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IZA Institute of Labor Economics

P.O. Box 7240
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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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