Flexible and Committed Profit Sharing with Wage Bargaining: Implications for Equilibrium Unemployment

We analyze the relationship between profit sharing, employee effort, wage formation and unemployment under different relative timings of the wage and profit sharing decisions. The optimal profit share under commitment exceeds that under flexibility, because through a profit share commitment the firm can induce wage moderation. The negotiated profit sharing depends positively on the bargaining power of trade union and it has both effort-enhancing and wage-moderating effects. Higher profit sharing is shown to reduce equilibrium unemployment under ``sufficiently rigid' labor market institutions, but it can harm employment when labor market ``rigidities' are ``small enough'.     

Capital Openness and Financial Crises: A Financial Contagion Model with Multiple Equilibria

Abstract

This paper explores the effects of capital openness on financial crises and contagion. In the model, we analyze four channels of contagion involved in the process of financial crisis: monsoon effects, spillovers, self‐fulfilling expectations and new information. We empirically test the data from China, an economy with capital account controls, and find that the fundamentals of China (PRC) are now in a vulnerable area which yields multiple equilibria. Consequently, the Chinese economy is easily affected via the channels discussed in this paper. Finally we suggest that the capital account of China should be opened gradually.     

Strategic Interactions of Monetary Policymakers and Wage/Price Bargainers: A Review with Implications for the European Common-Currency Area

This paper reviews recent work on macroeconomic management with varying organization of wage/price bargaining and degrees of credible monetary conservatism. The emerging literature synthesizes and extends theory and empirics on central bank independence (CBI) and coordinated wage/price bargaining (CWB), arguing that the degrees of CBI and CWB interact with each other and with other political-economic conditions (sectoral composition, international exposure, etc.) to structure the incentives facing actors involved in monetary policy and wage/price bargaining. The core implication, theoretically surprising but empirically supported, is that even perfectly credible monetary conservatism has long-run, equilibrium, on-average real effects, even with fully rational expectations, and that these effects depend on the organization of wage/price bargaining. Conversely, wage/price-bargaining structure has real effects that depend on the degree of credible conservatism reflected in monetary-policy rules. Each also has interactive nominal effects though this is less surprising. Some disagreement remains over the precise nature of these interactive effects, but all emerging theory and evidence agree that a common, credibly conservative European monetary policy has nominal and real effects that depend on the Europe-wide institutional-structural organization of wage/price bargaining. Indeed, the one specific piece of theoretical and empirical agreement suggests that, for many member countries, the nominal gains from monetary-policy delegation to a credibly conservative European Central Bank will worsen these bargaining-policy interactions.