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Koskela, Erkki
Stenbacka, Rune
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 275
We offer a unified framework to analyze the determination of employment, employee effort, wages, profit-sharing and capital structure when firms face stochastic revenue shocks. We apply a generalized Nash bargaining solution, which extends the wage bargaining literature by incorporating efficiency wage considerations, profit-sharing and capital structure. The profit-sharing instrument is demonstrated to have positive effort-augmenting and wage-moderating effects, which exactly offset the negative dilution effect in equilibrium. Leverage is shown to decrease employment and to have a strategic commitment value as a wage-moderating effect for firms facing unions in bilateral wage negotiations. Finally, some implications for equilibrium unemployment are characterized.
Wage bargaining
profit sharing
capital structure
Document Type: 
Working Paper

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