Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment

26 Pages Posted: 6 Jan 2005

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

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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 the benefit-replacement ratio is sufficiently high. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.

Suggested Citation

Koskela, Erkki and Stenbacka, Rune, Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment. Scandinavian Journal of Economics, Vol. 106, No. 4, pp. 677-701, December 2004. Available at SSRN: https://ssrn.com/abstract=633432

Erkki Koskela (Contact Author)

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

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Bank of Finland - Research Department ( email )

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IZA Institute of Labor Economics

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Rune Stenbacka

Hanken School of Economics ( email )

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FI-00101 Helsinki, 00101
Finland
+35 89 4313 3433 (Phone)
+35 89 4313 3382 (Fax)

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