on the equivalence of profit and revenue sharing abstract this paper shows that even in a unionised labour market net and gross profit sharing as well as revenue sharing are isomorphic neither the capital stock nor the wage employment combination depends on the deductibility of base wages and or capital costs from the share base

on the dixit stiglitz model of monopolistic competition our purpose in this note is to revisit the popular monopolistic competition model of avinash k dixit and joseph e stiglitz 1977 and to stress the fact that the variant of this model used in the recent macroeconomic literature is significantly different from the original in particular by taking n as the number of active monopolists the recent discussion of dixit and stiglitz 1993 and xiaokai yang and ben j heijdra 1993 about the the advantages of neglecting terms of the order 1 n in the computed elasticities is significantly affected by the choice of the variant of the model the basic model presented in section i has been used from the start by dixit and stiglitz to study optimum product diversity it is a simple general equilibrium model with n monopolistic goods and a numeraire good which can be interpreted as labor or leisure time or as the aggregation of all the other goods in the economy the variant of the model analyzed in section ii was independently developed by several authors for different simple applications in macroeconomics 1 it is an enlarged model that includes an additional good interpreted as labor time but not taken as the numeraire more importantly the enlarged model does not lead to a general equilibrium analysis until the wage rate taken as given in a first step is adjusted competitively or strategically it is for the basic model that yang and heijdra 1993 yh give an alternative computation method taking into account the priceindex effect of individual pricing decisions this effect had been neglected in the original paper of dixit and stiglitz 1977 ds who were only concerned with the large n case ensured by low fixed costs and imperfect substitution between the monopolistic goods limiting their model to the special case of a unitary elasticity of substitution between the monopolistic goods and the numeraire good yh obtain an explicit solution but yh s solution is still an approximation because it neglects the indirect effects that feedback has on pricing decisions we will show that in the enlarged model taking into account this income feedback effect allows for an explicit solution and simplifies calculations but in the variant some meaningful cases are incompatible with free entry and thus prohibit the use of ds s approximation however as we conclude in section iii this is not to say that their approximation should never be used on the contrary the approximation hypothesis is a very useful part of dixit and stiglitz s contribution

profit sharing capital formation and the nairu this paper reconsiders the impact of different remuneration systems on aggregate employment contrary to common wisdom on this topic we show that the switch from a fixed wage economy to a share economy results in lower aggregate unemployment an additional innovation of this paper is the endogeneity of the capital stock decision of the firm which enables us to assess and reject the common disincentive to invest criticism of a share economy

monopolistic competition in the spirit of chamberlin a general model this paper develops a model of large group chamberlinian monopolistic competition in which 1 there are many firms producing differentiated commodities 2 each firm is negligible in that it can ignore its impact on and hence reactions from other firms 3 free entry leads to zero profit of operating firms but 4 each firm faces a downward sloping demand curve the existence of a monopolistically competitive equilibrium is established in a companion paper more particular questions such as whether the market provides too many or too few products are addressed for a special case of the model

forms of trust and conditions for their stability of the three principal approaches to trust we decided to investigate in greater detail the one in which trust is regarded as a belief that the individuals involved hold about a relationship trust was defined as a delegatory relationship based on anticipation of the delegatee s behaviour we reached four main conclusions first the solution to the problem posed by the indeterminacy of trust lies in the differentiation and hierarchisation of the various forms of trust contractual organisational and tacit on the basis of their degree of irreversibility and stability second contractual trust is unstable because it comes up against the problem of guarantees of individual intentions this leads to the third conclusion rational evaluation by individuals cannot by itself establish trust which is based on collective beliefs practices and rules fourth we identified two conditions for the stability of trust the creation of irreversibilities through adherence to a rule and the creation of a confidence interval within which different interpretations of contradictory individual strategies are tolerated thus the viability of the various forms of trust depends on the ability of institutions and organisations to create rules that are likely when applied to produce an interval in which tolerance of mutual intentions is the norm these analyses of trust hence highlight the role of time and period of time in the notion of trust

the objective demand curve in general equilibrium with price makers objective demand curves in general equilibrium with explicitly modeled price makers have been defined so far in a number of specific cases this paper gives a general definition of such an objective demand curve the associated general equilibrium concept is defined and sufficient existence conditions are given copyright 1987 by royal economic society

do government agencies use public data the case of gnp in 1991 the u s council of economic advisers undertook an initiative to increase the quality of economic statistics one specific objective was to reduce the size of revisions in gnp estimates we present evidence that one straightforward and inexpensive way of forwarding this objective is for the department of commerce to utilize better publicly available information released by other governmental agencies an important caveat however applies the relationship appears to be non linear specifically the inefficient use of information is concentrated in those quarters where the change in the preliminary gnp estimate is large in absolute value

ranking alternative share contracts under rational expectations abstract this paper analyzes the price level and output stabilization properties of share contracts in a log linear rational expectations model profit sharing product wage and wage fund share contracts are compared to flexible and downwardly rigid nominal wage schemes we find that when the disturbances to the economy are nominal labor compensation schemes which reduce real variability exacerbate nominal variability when the disturbances are real compensation schemes which reduce real variability can also reduce nominal variability

on monopolistic competition and involuntary unemployment in a simple temporary general equilibrium model it is shown that if the number of firms is small imperfect price competition in the markets for goods may be responsible for the existence of unemployment at any given positive wage in our examples involving two firms facing their true demand curves total monopolistic labor demand remains bounded as the wage rate goes to zero and unemployment prevails for a sufficiently large inelastic labor supply in the competitive case total labor demand would go to infinity and intersect labor supply at a positive wage

the macroeconomic implications of profit sharing some empirical evidence the macroeconomic implications of profit sharing some empiricals paper attempts an empirical assessment of weitzman s proposition that profit sharing provides an antidote to stagflation taking japan as an example of a profit sharing economy the author shows that it does not have either lower cyclical variability of output or lower inflation than other industrial countries the authors then reject the propositions that in a profit sharing economy 1 aggregate demand shocks have a smaller effect on output deviations and 2 import price shocks and wage push have a smaller effect on inflation therefore one should be wary of the claim that the japanese case supports weitzman s model copyright 1987 by royal economic society

labor market share contracts when the firm has two variable inputs this paper extends weitzman s analysis of share contracts firstly a second variable input is introduced into a firm s production technology some share contracts give the firm an incentive to reduce worker compensation by manipulating the second variable input this implies that contracts which possess this property cannot support the same long run equilibrium as would be achieved with a wage contract secondly a positively sloped labor supply curve is introduced it is shown that while share contracts reduce involuntary unemployment they may not reduce total unemployment vis a vis wage contracts the paper identifies the factors which determine relative employment variability

negotiation of profit sharing contracts in industry we examine the properties of profit sharing in a game theoretic oligopoly model of industry profit sharing contracts are viewed as a means of strategic commitment not as an internal incentive system in our model firms choose a contract subject to the employees participation constraint in a first stage and compete on the output market in a second stage we show that the choice of a profit sharing contract by each firm is a non cooperative equilibrium in the case of cournot competition the game under study has the structure of the prisoners dilemma the case of price competition on the output market leads to somewhat different conclusions

ski lift pricing with applications to labor and other markets the market for ski runs or amusement rides often features admission tickets with no explicit price per ride therefore the equilibrium i nvolves queues which are systematically longer during peak periods s uch as weekends moreover the prices of admission tickets are much l ess responsive than the length of queues to variations in demand eve n when these variations are predictable despite the queues and stick y prices the authors show that the outcomes are nearly efficient und er plausible conditions they then show that similar results obtain f or some familiar congestion problems and for profit sharing schemes i n the labor market copyright 1987 by american economic association

profit sharing risk sharing and firm size implications of efficiency wages by taking account of output fluctuations this paper constructs a synthesis of profit sharing and efficiency wage models to highlight the role of the risk attitudes of the firm and its employees we show contrary to the traditional efficiency wage theory that in a profit sharing economy unemployment is no longer a necessary device to induce work effort and consequently the labor market equilibrium may be characterized by full employment such a result is more likely to be true when the economy is characterized by small sized firms in addition we also provide a preliminary sketch of the situations in which the firm chooses a profit sharing program or a fixed wage one and discuss how a firm determines its pay parameters and employment in response to output fluctuations

rent shifting and rent sharing a re examination of the strategic industrial policy problem this paper reexamines the market structure problem in the strategic trade policy literature it is shown that rent sharing between the home union and the home firms raises total home industry rents regardless of whether the international duopoly is cournot or bertrand furthermore home welfare also rises with cooperation if the international industry consists of more than two firms if the industry is faced with entry and if there is domestic consumption this paper shows that rent sharing can be a robust strategic industrial policy and can be interpreted as a solution to the market structure dilemma

oligopoly profit sharing contracts and the firm s systematic risk abstract this article examines the properties of wage and profit sharing contracts in a model of oligopoly with capital market equilibrium while profit sharing contracts dominate market wage contracts profit sharing also reduces the firm s cost of equity capital under fairly broad conditions of oligopoly by enforcing lower costs in exchange for a pre determined share of cash flows to workers this form of operational leverage both reinforces the classical effect of market power on systematic risk and the impact of profit sharing on the corporate finance of the firm as previously suggested by ichino 1994 european economic review 38 1411 1422

privatization technology choice and aggregate outcomes abstract we analyze the macroeconomic consequences of privatization policies in transition economies due to the particular market structure in those economies strategic completnentarities in restructuring of privatized firms occur giving rise to multiple macroeconomic equilibria restructuring and the resulting macroeconomic outcomes crucially depend on how property rights are distributed and which method of privatization is chesen firm sales to single or core investors may easily lead to bad equilibria without restructuring if employees are given profit claims this is so even if the workers give up parts of their wages as a compensation for stocks wage equity swaps contrary to conventional wisdom mass privatization can have favourable influence on micro economic efficiency and may therefore lead to a good aggregate outcome as an additional feature favouring mass privatization we argue that a big bang approach to privatization might lead to a favourable equilibrium

a quantized approach to rational inattention abstract in this paper i propose a model of rational inattention where the choice variable is a deterministic function of the exogenous variables and still only a finite amount of information is being used this holds provided the choice variable is discrete rather than continuous that is the mapping from the realization of the exogenous variables to the endogenous ones is piece wise constant thus limited information is now a source of lumpiness in behavior rather than a source of noise the approach is applied to a simple static model of price setting where individual price setters face aggregate monetary shocks and idiosyncratic productivity shocks the effect of aggregate money shocks on output and prices is studied it is shown that as the variance of idiosyncratic shocks become large the aggregate log price level converges to a linear function of the aggregate money shock with a coefficient which is strictly between 0 and 1 consequently unanticipated aggregate money shocks have real effects on output in contrast to the sticky price model of caplin and spulber 1987 but these effects are smaller than in standard rational inattention models or in the lucas 1972 misperception model

some pitfalls in the conventional treatment of aggregate demand in recent years the aggregate demand aggregate supply model has replaced the is lm framework as the dominant pedagogical tool for teaching macroeconomics of course the is lm model is still used but its primary function has been relegated to that of providing a convenient vehicle for deriving the aggregate demand curve in the conventional derivation price induced changes in the real money supply shift the lm curve along a fixed is schedule absent wealth effects on consumption and map out levels of output where aggregate demand and output are equal implicit in this approach is the assumption that output supplied by firms responds passively to aggregate demand whatever the price level but this passive response necessarily implies firms raise output in response to a decrease in the price level and lower output in response to an increase in the price level a strikingly odd result that is fundamentally inconsistent with modem theories of aggregate supply our argument is that for internal consistency the aggregate demand curve must be derived using the aggregate supply curve that will eventually be paired with the aggregate demand curve to determine equilibrium price and output the conventional aggregate demand curve does not meet this consistency test because the keynesian assumption which generates the aggregate demand curve i e that output responds passively to demand is at variance with the supply response that is later paired with this aggregate demand curve the inconsistency is obvious firms cannot both raise and lower output in response to a change in the price level clearly the conventional approach to aggregate demand neglects serious consideration of the crucial role played by aggregate supply since output influences consumption expenditures the aggregate demand curve cannot be derived independently of the supply side of the economy therefore rather than use the keynesian assumption that output responds passively to demand we derive the aggregate demand curve by incorporating a lucas type supply response which

codetermination and the modern theory of the firm a property rights analysis during the postwar period state sponsored codetermination programs have become increasingly important and by now are firmly established in most countries of western europe conventional wisdom suggests that this growth of reform legislation is part of a broad social movement designed to advance industrial democracy and enlarge the power of labor to influence corporate policy certainly there is no doubt that significant institutional change has taken place but since reorganization has been motivated more by political considerations than by any fundamental rethinking of the theory of the firm questions still exist concerning the effects the new system may have on economic behavior there are in fact serious doubts about the efficiency of mandatory codetermination various writers have suggested that the type of codetermination legislation found in europe may force firms to adopt organizational structure that would not be selected voluntarily by wealthwhen workers finance firm specific investments they supply one part of the total capital stock needed by the firm for production it is arguable then that worker investors should be regarded as equity holders and be granted control and income rights in the enterprise this article seeks to explain the property rights structure that such a codetermined firm must possess to be efficient and to determine the conditions under which this organizational form is likely to emerge under a voluntary contracting process compared to a legally mandated codetermined firm of the european type the voluntary variant shows clear superiority specifically it tends to promote productivity enhancing incentives relatively lower transaction costs and a more rational allocation of risk special thanks go to armen alchian who has provided encouragement advice and key ideas concerning the nature of the firm the article was written during my residence at the center for the study of the new institutional economics university of the saarland west germany 1985 financial assistance was received from the deutsche forschungsgemeinschaft and is gratefully acknowledged

is profit sharing a cure for unemployment in less developed countries abstract the effects of introducing profit sharing in modern sectors in ldcs are discussed within a dual model with endogenous wages and internal migration profit sharing does not have a direct job creation effect as long as firms set the pay parameters yet the new system may have long run effects on employment allocation under some circumstances profit sharing may in fact destabilize short run employment such that jobs last for a shorter duration modern sector wages are then raised to discipline workers and urban unemployment goes up arguments are also given for the hypothesis that profit sharing stabilizes short run employment with the opposite results

efficiency wages partial wage rigidity and money nonneutrality the efficiency wage theory is generally regarded as a plausible explanation as to why wages do not fall to clear labor markets in the presence of involuntary unemployment at the current stage of its development not much is said concerning the role of nominal money and the fluctuations in aggregate employment and output adopting the efficiency wage theory this paper uses the idea of partial rigidity of wages in an attempt to explain why changes in money supply and other demand management policies can cause fluctuations in aggregate employment and output

employment restraining agreements in weitzman s share system abstract weitzman 1983 argues that a profit sharing system would automatically maintain full employment in the face of deflationary shocks this note shows that such a virtuous disequilibrium behavior could be thwarted by the spread of employer employee agreements by which the firm is compensated to temporarily refrain from hiring the unemployed

nominal disturbances wage flexibility and shifting resources in a two sector economy the recent behaviour of european unemployment rates has sparked considerable interest in the connection between wage flexibility and unemployment see for example bruno and sachs i985 and the papers in the i986 supplement to economica much of the empirical work finds that economies adjust more rapidly and with less inflation when wages and prices are very responsive to unemployment this finding supports the belief that greater wage and price flexibility leads to greater macroeconomic stability in fact one can view martin weitzman s i 983 i 984 and i 985 share system as an institutional change aimed at providing sufficient wage and price flexibility to avoid unemployment it is hard to imagine how wage and price flexibility could increase in all sectors of the economy simultaneously instead greater aggregate wage and price flexibility is likely to result from increased wage and price flexibility at particular firms in particular sectors as a result realistic proposals for share systems involve some time perhaps forever when share firms and wage firms would coexist during this period an increase in aggregate flexibility will be associated with an increase in the difference in wage and price flexibility between sectors this paper analyses allocational issues raised by such an uneven increase in aggregate wage and price flexibility the analysis is done explicitly in terms of a short run two sector model where the first sector is a fixed wage sector and the second sector is a share sector the model is short run because both the number of firms in each sector and the pay parameters at all firms are fixed while the explicit analysis is done in terms of share firms in the second sector the model is more general the second sector can be thought of as the flexible sector where wage and price flexibility maintain full employment an important new phenomenon occurs in the mixed system relative prices change in response to nominal disturbances in particular the relative price of the flexible sector falls in response to a decrease in nominal aggregate demand as a result of the change in relative prices both the utilisation of labour and the mix of consumption shift to the more flexible sector in addition the opposite shifting of resources and consumption occurs in response to an increase

comparative economic performance of conventional and profit sharing firms abstract this paper compares the various economic properties of conventional firms and profit sharing firms the properties contrasted include wage level employment output price total economic rents and industry efficiency the firms operate in an oligopolistic industry with a labor union in general profit sharing firms outperform non sharing firms however there exist counterexamples in which non sharing firms can outperform sharing firms to test the robustness of the results the analysis is conducted for a variety of oligopolistic industries quantity setting pricesetting and joint collusion

imperfect competition and the suboptimality of rational expectations abstract this paper investigates whether nonrational expectations can lead to outcomes which other things being equal pareto dominate rational expectations outcomes in order to carry out this investigation we construct an intertemporal micro based macroeconomic model with the two following strong points a it accommodates both rational and non rational expectations b both prices and quantities are determined by optimizing agents in particular prices are determined by explicit price setters using objective demand curves in this model the first theorem of welfare holds so that the walrasian equilibrium with rational expectations cannot be pareto dominated this conclusion is extremely fragile however and we show that as soon as some degree of imperfect competition is present rational expectations are suboptimal in the sense that they are dominated by irrational expectations

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

wage bargaining and nominal rigidities abstract delays in wage negotiations do not necessarily mean work stoppage production can continue under the terms of the old contract while the parties are bargaining holdout this holdout option is included in a strategic bargaining game in addition to strike and lock out threats integrating the bargaining model in a standard macroeconomic framework it turns out that holdout threats will prevail under certain circumstances in this case wages will be rigid in nominal terms so that an increase in aggregate nominal demand increases aggregate output

profit sharing and relative consumption mandatory profit sharing can represent a pareto improvement if labour supply is excessive due to relative consumption effects profit sharing reduces wages if the rise in profit income keeps total income constant there will only be a pareto improving substitution effect

profit sharing unions and investments the pay parameters in a profit sharing system are likely to be determined by collective bargaining between unions and employers in this case employment will not necessarily be higher under profit sharing than under a fixed wage system for a fixed capital stock the most likely case is that profit sharing is better for unions and worse for employers than a fixed wage system with endogenous investments both parties may be worse off under profit sharing than under a fixed wage system this might be one of the reasons why we in fact do not observe much profit sharing under collective bargaining

policy directions for the new economic model in latin america abstract the new economic model nem has been extremely successful in reducing inflation and in increasing exports but quite disappointing in terms of the growth of output and productivity it is argued that this calls for a second generation of reforms especially centered at the plant level and its surrounding factor markets to close the huge productivity gap separating firms from best practice and so enable the accelerated growth rates typical of successful late starters policies should emphasize the systematic identification of those technologies and practices best suited to local conditions and their rapid transfer adaptation and diffusion throughout the economy

a simple macroeconomic model with monopolistic firms this paper presents a simple macroeconomic model in which firms outputs are imperfect substitutes and explores the macroeconomic implications of monopolistic competition the model is classical in some respects but keynesian in others multiple or unstable equilibria are not unlikely permanent price controls will in principle be desirable since they allow a permanent and efficient increase in aggregate output small costs of price adjustment may induce large deviations of output from the natural rate fiscal policy will generally affect aggregate output but the sign and magnitude of the government expenditure multiplier cannot be determined a priori

the simple macroeconomics of profit sharing this paper is in the spirit of the temporary equilibrium approach to macroeconomics it basically extends that framework to cover a profit sharing system and then compares the macroeconomic characteristics with those of the more familiar wage system a first preliminary step is to demonstrate how a microeconomic model of monopolistic competition can be built up into a junior member of the keynesian macro family the methodology is to create from first principles including a careful formulation of a monopolistically competitive product market structurea natural underpinning for the standard aggregate demand specification the primary goal of the paper is to apply the integrated monopolistic competitionkeynesian type apparatus described above to investigate the macroeconomic properties of a profit sharing economy the existence of a consistent general framework covering both cases invites meaningful comparisons that indicate clearly why an economy based on profit sharing principles possesses natural immunity to stagflation by contrast the wage economya system we have largely accepted without critically examining its macroeconomic consequences is more prone to suffer from unemployment and inflation the policy implications for aggregate demand management in wage and share systems are analyzed and contrasted in writing this paper my philosophy has been to not shirk from using those reasonable parameterizations and functional forms which yield nice crisp results and permit me to focus sharply on the essential logic of basic issues it is certainly possible to present the main results in a somewhat more general formulation as the astute reader will appreciate but i fear only at some cost of distracting attention from those central features i wish to highlight

unions and the incidence of performance linked pay schemes in britain abstract this paper examines the relationship between trade unions and the incidence of share ownership profit sharing and value added schemes in britain the first two schemes are more common in the union sector whilst the third occurs more in non union establishments a distinction is made between weak and strong unions and it is found that performance linked pay schemes are in general less likely to be present if an establishment has a strong union rather than a weak one

profit sharing employment efficiency and wage stability a contract between a risk neutral firm and its risk average workers is considered under uncertainty about product demand we show that profit sharing can be used to attain the efficient level of employment and at the same time preserve optimal risk sharing between the parties optimal profit sharing does not imply wage variability instead wages are stabilized across states

evaluating the oecd s forecasts for economic growth the size and nature of the errors in gdp forecasts in the g 7 countries from 1968 to 1995 are examined these gdp estimates are published by the organization for economic cooperation and development in oecd economic outlook two alternative hypotheses are tested concerning why revisions arise the first hypothesis is that preliminary announcement is simply the true variable measured with error in this case the preliminary announcement is an unconditionally unbiased but irrational forecast of the true value that is the revision is correlated with known variables in particular it is correlated with the preliminary announcement itself the second hypothesis is that revisions arise because the early gdp estimates are a rational forecast of the true variable in this case the error is a rational forecast error and is therefore uncorrelated with known information

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

differential information monopolistic competition and investment the behavior of investment in a monopolistically competitive industry is investigated under the assumption of imperfect information about the average investment firms profits are affected by productivity shocks these shocks consist of two types of disturbances industry wide and idiosyncratic ones the main results are investment under imperfect information is more volatile than that under perfect information if firms can observe their own productivity conditions but not their components and increased competition always destabilizes investment and raises its volatility the rigidity of rational expectations plays a crucial role copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

interest risk sensitive deposit insurance premia stable ach estimates abstract the parameters of interest rate uncertainty are estimated by maximum likelihood for the period 1952 1982 and used to evaluate bank or thrift deposit insurance as a function of duration mismatching capital asset ratio and the recent history of interest rate forecasting errors homoskedasticity is overwhelmingly rejected in favor of adaptive conditional heteroskedasticity ach even after removing this heteroskedasticity normality gives much lower likelihood than paretian stable distributions with characteristic exponent in the range 1 614 to 1 714 the conditional deposit insurance values fluctuate by factors in excess of 300 for some duration gaps over the past three decades

distribution and growth in an economy with limited needs variable markups and the end of work this article studies a model of the distribution of income under bounded needs utility derived from any given is bounded from above and demand is therefore not isoelastic on the other hand introducing new varieties always increases utility it is assumed that each variety is owned by a monopoly workers can specialise in material goods production or in the knowledge sector which designs new varieties as productivity increases the economy moves from a solovian zone where wages increase with productivity to a marxian zone where they paradoxically decline with productivity

profit sharing and european unemployment abstract this paper uses three criteria to evaluate profit sharing as a policy to help improve europe s economic performance a reduction of the real wage b expansion of firms profits and c restraint of the wage demand given an expansionary demand stimulus it is shown that under the alternative market structure of perfect competition monopoly and cournot nash oligopoly real wage tends generally to decline with sharing there also exists a positive share parameter such that firms profits will rise lastly if an expansionary demand policy is adopted the union will tend to demand a smaller wage increase under a share system this paper suggests that profit sharing may possess useful important properties that are relevant to the european problem

profit sharing and employee share ownership profit sharing and employee share ownership saul estrin paul grout and sushil wadhwani this paper evaluates the likely effects of linking a part of a worker s pay to the employer s profits it has been suggested by weitzman that this would raise employment by lowering the cost of taking on an extra worker however this can only happen if existing workers are willing to let their share of value added fall and experience of those firms in the uk who already operate profit sharing schemes suggests that the weitzman mechanism is not operative there is however some evidence that profit related pay does boost productivity but there are other ways of raising productivity such as performance related pay which may be more effective productivity enhancing effects are likely to be greatest when employees are involved in decision making as well but this is likely to undermine the weitzman case still further even if the argument that profit sharing raises employment is not compelling it is sometimes suggested that it can do little harm however there is evidence that it may well be inflationary in which case the government would be advised to proceed cautiously we argue that there is very little case for the introduction of a permanent subsidy to encourage increased profit sharing although there may be a case for a temporary one to overcome managerial inertia however there is a danger that a subsidy will promote cosmetic schemes designed to be eligible for the subsidy but which do not reflect any real change in behaviour

shifting wage norms and their implications at least since the early 1970 s it has been apparent that the cyclical variations in inflation summarized by the short run phillips curve are only one part of the inflation problem that confronts modern industrial economies another part is the relative persistence of an established rate of inflation there is a good deal that we do not understand about this persistence but i find the most useful way to model it is to start with the concept of a relatively stable wage norm by which i mean a norm for the rate of wage increase the model distinguishes sharply between the cycle and the trend in inflation with the wage norm determining the trend the variations in inflation of the typical business cycle take place around the existing wage norm and generate the empirical short run phillips curve the wage norm itself is affected little if at all by the typical business cycle historically the wage norm has been shifted by prolonged departures from typical business cycles or by other extreme economic developments figuring out more precisely what it takes to shift wage norms or what might keep them from shifting is a central challenge for understanding inflation better before turning to its implications let me sketch the behavioral underpinnings of the wage norm model and the empirical evidence about wage norms the norm rate of wage increase has no allocational significance and describes the trend of nominal wages independent of real aggregate demand or relative demand effects in this respect it is like the anticipated rate of inflation in many familiar models wages are not determined in an auction like labor market that clears over any reasonable interval of time rather they are established by wage setting firms with a profit maximizing interest in their long run relation with their employees in some cases in a bargaining situation with unions under both the implicit and explicit contracts that thus dominate wage setting keeping up with the norm is the neutral standard for firms an individual firm that raises wages in line with the norm neither improves nor worsens its relative position as an employer a firm that wants to expand employment will typically offer a higher wage than would be required just to keep up with the norm relative wages and relative employment levels are thus codetermined in this process when most firms want to expand employment as in a cyclical upturn the same behavior is part of the process producing the modest cyclical rise in inflation that we observe as the short run phillips curve thus the onset of cyclical inflation is not a sign that capital and labor resources are being overutilized nor is it a sign that inflation is on an accelerating path or even that wage norms are shifting up in analyzing u s postwar data i have found the wage norm shifted up substantially by the end of the 1960 s and down again though not by as much by the end of the 1980 82 recession see my 1983 paper the first episode was a period with a historic expansion that ended with several years of very low unemployment rates the second was a recession of unusual length and severity that ended with the highest unemployment rates since the 1930 s there is also evidence of a small shift down in the wage norm after the weak economic performance of 1957 61 which featured two recessions with only an aborted recovery in between i also found evidence for germany the united kingdom and japan of upward shifts in wage norms in manufacturing industries after the 1960 s and downward shifts in the early 1980 s see my 1986 paper all these episodes suggest the kinds of extreme cyclical developments that have shifted wage norms in the postwar period the brookings institution 1775 massachusetts avenue nw washington d c 20036 in preparing this paper i benefited from discussions with charles schnl t7 e

annual bonuses employment and productivity change in taiwan s manufacturing sector abstract taiwanese manufacturing firms have traditionally made annual bonus payments to employees concentrated around the lunar new year holiday this paper uses industry data to investigate the connection between compensation volatility and the volatility and growth rate of employment we observe a significant relationship between employment and seasonally predictable compensation volatility implying that industries in which firms commit themselves to paying regular new year bonuses employ more workers more stably we also investigate the relationship between compensation profits and productivity growth we find a significant role for productivity growth in the determination of profits and for profits in the determination of bonuses however it appears that productivity growth itself is mainly determined by exogenous factors and is only slightly responsive to the bonus system

some evidence on the relationship between performance related pay and the shape of the experience earnings profile we investigate the relationship between performance related pay prp and the shape of workers experience earnings profiles in particular we argue that the slope of the profile depends critically upon the degree of equity held by workers in their enterprise as measured by the extent of prp the implication is that the slope of the profile for prp workers falls between those of their zero equity fixed wage and one hundred per cent equity self employed counterparts our empirical analysis of three british data sets namely the british social attitudes survey the british household panel survey and the british family expenditure survey supports this prior in this paper we explore the shape of the experience earnings profile for individuals employed under different types of contracts fixed wage performance related pay prp and self employment contracts we follow lazear 1979 1981 and lazear and moore 1984 in hypothesizing that the slope of the experience earnings profile reflects agency costs and the reduction thereof with increased agency costs inducing steeper profiles if monitoring costs are high firms may implement compensation schemes designed to encourage employees to self select behavior in the firms interests one such scheme defers a substantial amount of compensation until the later years of tenure the resulting experience earnings profile provides a penalty for shirking lazear and moore 1984 we therefore presume that the profiles of workers employed under fixed wage contracts are steeper than those of self employees for whom the issue of agency does not arise because of the duality of principal and owner lazear and moore 1984 the interesting case is that of workers employed under prp if such contracts represent a hybrid between fixed wage and self employment then one would expect their experience earnings profiles to lie somewhere between these two extreme