Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19067
Authors: 
Koskela, Erkki
Stenbacka, Rune
Year of Publication: 
2005
Series/Report no.: 
CESifo Working Paper 1603
Abstract: 
We investigate the implications of product market imperfections on profit sharing, wage negotiation and equilibrium unemployment. The optimal profit share, which the firms use as a wage-moderating commitment device, is below the bargaining power of the trade union. Intensified product market competition decreases profit sharing, but increases the negotiated base wage, because the wage-increasing effect of reduced profit sharing dominates the wage-reducing effect associated with a higher wage elasticity of labor demand. Finally, we show that intensified product market competition does not necessarily reduce equilibrium unemployment, because it induces both higher wage mark-ups and lower optimal profit shares.
Subjects: 
product market competition
profit sharing
wage bargaining
equilibrium unemployment
JEL: 
L11
J51
J33
Document Type: 
Working Paper

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