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Profit-Sharing and Optimal Labour Contracts

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  • Simon P. Anderson
  • Michael Devereux

Abstract

This paper examines the effect of introducing profit-sharing arrangements into union-firm contracts. It is shown that if bargaining is efficient (using the generalized Nash bargain), profit-sharing has no effect on the bargaining outcome. This is true both when the profit-sharing restriction is exogenously imposed by legislation and when profit sharing is part of the optimal contract. However, if the initial bargaining process is inefficient because direct negotiation on total employment is precluded, an optimal contract can use profit sharing to establish the efficient bargaining outcome. Both types of bargaining models have been employed in the literature.

Suggested Citation

  • Simon P. Anderson & Michael Devereux, 1989. "Profit-Sharing and Optimal Labour Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 425-433, May.
    • Handle: RePEc:cje:issued:v:22:y:1989:i:2:p:425-33
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    Citations

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    Cited by:

    1. Koskela, E. & Stenbacka, R., 2000. "Capital Structure, Wage Bargaining and Employment," University of Helsinki, Department of Economics 475, Department of Economics.
    2. Erkki Koskela & Rune Stenbacka, 2005. "Product Market Competition, Profit Sharing and Equilibrium Unemployment," CESifo Working Paper Series 1603, CESifo.
    3. Erkki Koskela & Rune Stenbacka, 2001. "Equilibrium Unemployment with Credit and Labour Market Imperfections," CESifo Working Paper Series 419, CESifo.
    4. Erkki Koskela & Rune Stenbacka, 2002. "Equilibrium Unemployment and Credit Market Imperfections: The Critical Role of Labour Mobility," CESifo Working Paper Series 654, CESifo.
    5. Matthias Göcke, 2011. "Efficiency Wages and Negotiated Profit-Sharing under Uncertainty," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 57(2), pages 91-105.
    6. Ronnie Schöb, 2002. "Public Profit Sharing," Kyklos, Wiley Blackwell, vol. 55(4), pages 523-542, November.
    7. Bill Yang, 1995. "Unionized oligopoly, labor-management cooperation, and international competitiveness," Journal of Economics, Springer, vol. 62(1), pages 33-53, February.
    8. Rupayan Pal & Bibhas Saha, 2016. "Entry Threats and Inefficiency in ‘Efficient Bargaining’," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(3), pages 258-277, July.
    9. Jan Sørensen, 1992. "Profit-sharing in a unionized cournot duopoly," Journal of Economics, Springer, vol. 55(2), pages 151-167, June.
    10. Jan König & Erkki Koskela, 2011. "Does International Outsourcing Really Lower Workers’ Income?," Journal of Labor Research, Springer, vol. 32(1), pages 21-38, March.
    11. Erkki Koskela & Rune Stenbacka, 2004. "Profit Sharing and Unemployment: An Approach with Bargaining and Efficiency-Wage Effects," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(3), pages 477-497, September.
    12. Elie Appelbaum, 2008. "Wages, Fringe Benefits and Efficiency in Union-Firm Bargaining," Working Papers 2008_04, York University, Department of Economics.
    13. Koskela, Erkki & König, Jan, 2009. "Can Profit Sharing Lower Flexible Outsourcing? A Note," IZA Discussion Papers 4063, Institute of Labor Economics (IZA).
    14. Emmanuel Petrakis & Panagiotis Skartados, 2018. "Strategic Profit–Sharing in a Unionized Differentiated Goods Duopoly," Working Papers 1801, University of Crete, Department of Economics.
    15. Michaelis, Jochen, 1997. "On the equivalence of profit and revenue sharing," Economics Letters, Elsevier, vol. 57(1), pages 113-118, November.
    16. Erkki Koskela & Rune Stenbacka, 2004. "Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 677-701, December.
    17. Koskela, Erkki & Stenbacka, Rune, 2003. "Profit Sharing and Unemployment: An Approach with Bargaining and Efficiency Wage Economics," Discussion Papers 863, The Research Institute of the Finnish Economy.
    18. Emmanuel Petrakis & Panagiotis Skartados, 2021. "Strategic profit‐sharing in a unionized differentiated goods oligopoly," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(2), pages 582-622, May.
    19. Koskela, Erkki & Stenbacka, Rune, 2012. "The relationship between product market competition and unemployment with profit sharing," Labour Economics, Elsevier, vol. 19(3), pages 291-297.
    20. Harbaugh, Rick, 2005. "The effect of employee stock ownership on wage and employment bargaining," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 565-583, September.
    21. Rupayan Pal & Bibhas Saha, 2010. "Entry Threats and Inefficiency in ‘Efficient Bargaining’," Working Papers id:2833, eSocialSciences.
    22. Domenico Buccella, 2016. "Profit sharing as entry deterrence mechanism," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 15(1), pages 17-31, April.
    23. Elie Appelbaum, 2004. "Union militancy and the probability of strikes," Working Papers 2004_4, York University, Department of Economics.
    24. Laszlo Goerke & Nora Paulus, 2024. "Collective Bargaining about Corporate Social Responsibility," IAAEU Discussion Papers 202401, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).

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