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Title:Profit sharing and relative consumption PDF Logo
Authors:Goerke, Laszlo
Issue Date:2012
Series/Report no.:CESifo Working Paper: Labour Markets 3970
Abstract:Traditionally, it has been argued that profit sharing can increase employment and welfare because it lowers marginal labour costs without reducing total cost or labour income. In this paper, we show that profit sharing can also represent a Pareto-improvement if labour supply is excessive due to relative consumption effects. Mandatory profit sharing reduces wages. If the rise in profit income keeps total income constant, profit sharing will have no income but only a substitution effect. Since labour supply is excessive, profit sharing constitutes a Pareto-improvement.
Subjects:labour supply
profit sharing
relative consumption
status concerns
JEL:D62
J22
J33
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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