The authors thank an anonymous referee for valuable suggestions to improve the paper. Erkki Koskela thanks Freie Universität Berlin for great hospitality and Jan König thanks University of Helsinki for great hospitality. Koskela also thanks the Academy of Finland (grant No. 121 7622) for financial support.
Profit Sharing and Outsourcing under Labor Market Imperfection
Article first published online: 16 JAN 2012
© 2012 Blackwell Publishing Ltd
Review of International Economics
Volume 20, Issue 1, pages 18–28, February 2012
How to Cite
König, J. and Koskela, E. (2012), Profit Sharing and Outsourcing under Labor Market Imperfection. Review of International Economics, 20: 18–28. doi: 10.1111/j.1467-9396.2011.01004.x
- Issue published online: 16 JAN 2012
- Article first published online: 16 JAN 2012
When the wage rate is set by the labor union, profit sharing and outsourcing is combined in this paper to analyze how the implementation of profit sharing affects individual effort and wage and thus outsourcing. The findings show that profit sharing and wage have an individual effort-augmenting effect and therefore increase productivity. It is also found that the wage effect of profit sharing in general is ambiguous. There is a wage decreasing substitution effect, but in contrast, there is a wage increasing effect via labor demand elasticity and effort so that outsourcing and employment effects are also ambiguous. Furthermore, it is shown under which condition a firm will implement a profit sharing scheme.