Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment
36 Pages Posted: 2 Sep 2004
Date Written: February 2004
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: Suggested Citation