The relationship between product market competition and unemployment with profit sharing |
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| Authors: | Erkki Koskela Rune Stenbacka |
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| Institution: | 1. Department of Economics, P.O. Box 17 (Arkadiankatu 7), University of Helsinki, 00014 Helsinki, Finland;2. CESifo, Munchen, Germany;3. IZA, Bonn, Germany;4. Hanken School of Economics, P.O. Box 479, 00101 Helsinki, Finland;1. School of Material Science and Engineering, Georgia Institute of Technology, Atlanta, GA 30332-0245, USA;2. School of Mechatronics Engineering, Harbin Institute of Technology, Harbin, Heilongjiang 150001, China;3. School of Material Science and Engineering, Tsinghua University, Beijing 100084, China;1. University of Jyväskylä, Jyväskylä University School of Business and Economics, Jyväskylä, Finland;2. University of Jyväskylä, Faculty of Humanities and Social Sciences, Department of History and Ethnology, Jyväskylä, Finland;3. Aalto University, School of Science, Department of Industrial Engineering and Management, Espoo, Finland;1. University of Helsinki, Department of Forest Sciences, P.O. Box 27, FI-00014 University of Helsinki, Finland;2. Finnish Game and Fisheries Research Institute, FI-99910 Kaamanen, Finland |
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| Abstract: | We investigate the implications of product market imperfections on negotiated wages and equilibrium unemployment under profit sharing. We show that intensified product market competition reduces equilibrium unemployment in a strictly monotonic way when the trade union's bargaining power exceeds the profit share. If the profit share exceeds the trade union's bargaining power, the effect of product market competition is ambiguous: there is a threshold for the benefit–replacement ratio above (below) which intensified product market competition increases (decreases) equilibrium unemployment. The profit share and the union's bargaining power affect the wage mark-up, and thereby equilibrium unemployment, in different directions. |
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