some macroeconomic implications of alternative compensation systems a basic theme of this paper is the idea that some structural reform of employee compensation arrangements is necessary to make reasonable price stability compatible with reasonably full employment in this view even the best designed macroeconomic policies are much too aggregative to get at the heart of the stagflation problem the ultimate solution involves going inside the workings of a modern capitalist economy and correcting the underlying structural flaw directly on the level of the individual firm stagflation represents an especially intractable policy dilemma for macroeconomics without a decisive tendency of the economic system to remain near full employment there is a strong prima facie case for fighting recessions by exogenously stimulating aggregate demand but the usual keynesian expansionary policies tend to impart an inflationary inertia that is difficult to choke off and of course the basic strategy for fighting inflation is to cool down the economy by restrictive monetary and fiscal policy thereby increasing unemployment and closing the viscous circle because the practical macroeconomic policies for dealing with unemployment and inflation are so diametrically opposed stagflation is a pervasive structural problem when for whatever reason there is basically an unfavourable short run tradeoff between unemployment and inflation economic policy tends to vacillate between expansion of demand to fight unemployment and restriction of demand to fight inflation polarising the electorate and distracting society from dealing effectively with its underlying real economic problems even the difficulty of attaining external balance in foreign accounts is largely a spillover into the international payments arena of an inability to achieve an acceptable internal balance between full employment and price stability this paper takes what might be called a comparative systems approach to the problem of stagflation at the heart of modern industrial capitalism is an incredibly complicated system of overlapping monopolistic competitors 2 a starting point for the paper is the realisation that the coordination difficulty which can cause some systems to suffer involuntary unemployment is not inherent in laissez faire private enterprise per se it is closely tied to one particular property of a conventional wage payment system namely compensation of each firm s employees is stuck to an outside numeraire whether money or a cost of

pay setting self employment and the unions one of the important influences that has shaped recent labour market policy is the idea that pay should depend on the employer s financial per formance this is believed both by politicians and by businessmen and comes in various guises it was the subject of long debate in the spring issues of the financial times prime minister john major argued that there should be no such thing as automatic pay increases pay must be linked to

unemployment profit sharing and japan s economic success abstract in this paper we examine the economic effects of profit sharing in a duopoly model where one firm engages in sharing profits with its union while the other firm does not the results show that profit sharing i reduces wages demanded by the unions ii tends to increase employment of the profit sharing firm and to increase employment in the entire industry and iii tends to increase the joint welfare of the profit sharing firm and the profit sharing union these results seem to suggest that the japanese success may be partly attributable to their informal profit sharing scheme

identifying determinants of branch performances in agricultural bank of china a spatial econometric approach this paper identifies determinants of branches performances in agricultural bank of china using the spatial econometric approach studies on changes of spatial patterns of a financial industry are scarce especially at the branch level this paper is the first attempt to take spatial interdependence and urbanisation effects into account to investigate the determinants of china s bank branches performances from 1997 to 2011 we have chosen the world s 10th largest bank the agricultural bank of china because it discloses the most complete panel data of all empirical evidence indicates that spatial effects and urbanisation have large statistically significant impacts on branches performances it highly and positively corresponds to tertiary industry output domestic consumption and urbanisation this signals that the abc has evolved from a state owned specialised bank to a listed commercial bank

hac estimation in spatial panels abstract we propose a hac estimator for the covariance matrix of the fixed effects estimator in a panel data model with unobserved fixed effects and errors that are both serially and spatially correlated

workers savings and the right to manage most western capitalist institutions are islands of fascism in a sea of democracy but democracy can be introduced from the political to the economic sphere by re assigning the right to manage from capital owners to workers thereby creating a sector consisting of self managed firms such firms require external finance for efficiency this can be supplied via a new form of financial asset performance bonds to be held by wage earners investment funds reforms such as these could improve productivity and the quality of working life strengthen the role of markets and help to deal with the so called pensions crisis these reforms would threaten the interests of private capital owners and would therefore require decisive political action they can thus be differentiated sharply from voluntary enterprise level schemes for introducing profit sharing employee share ownership or industrial democracy

profit sharing in the british retail trade sector the relative performance of the john lewis partnership this paper investigates the effects of profit sharing on wages and employment by comparing the labour market behaviour of the john lewis partnership with that of four main competitors the john lewis partnership employs around 30000 workers who since 1970 have been paid between 13 and 24 per cent of workers income in the form of a profit related bonus the empirical works suggests that profit sharing in the john lewis partnership may be associated with greater levels of employment but does not significantly affect the level of remuneration in recent years a growing proportion of employment contracts in britain have linked pay with the fortunes of the firm see for example blanchflower and oswald 1988 this trend has been stimulated by the british government s introduction of tax relief for profit related pay prp first in 1987 and extended in 1991 weitzman 1984 argues that profit sharing will stabilize employment reduce unemployment and increase wage flexibility the possibility of these externalities from profit sharing on wider economic performance has been used to justify policy interventions this paper reports empirical tests of wage determination and employment creation effects based on a comparison of the labour market behaviour of the john lewis partnership with that of four important competitors in the british retail sector we find some evidence that profit sharing enhances employment

takeovers and other influences on economic performance a plant level analysis the results of an empirical investigation into the effects of takeovers and other variables on corporate performance is reported our sample of 972 establishments is taken from the workplace industrial relations survey 1984in which the plant is the unit of investigation and the assessment of performance is made by mangers using logit analysis we find that the main determinansts of relative financial performance are avoidance of takeover and strength of market position the main determinants of growth of sales are profitability change of ownership smaller size and lack of market dominance in these results we find support at the plant level for views on the effects of mergers market dominance and the determinants of growth that have traditionally been demonstrated at the level of the firm

optimal incentive contracts under inequity aversion we analyze the classic moral hazard problem with the additional assumption that agents are inequity averse the presence of inequity aversion alters the structure of optimal contracts when the concern for equity becomes more important there is convergence towards linear sharing rules the sufficient statistics result is violated depending on the environment contracts may be either overdetermined i e include non informative performance measures or incomplete i e neglect informative performance measures finally our model delivers a simple rationale for team based incentives implying wage compression 2010 elsevier inc

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

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

the international impact of federal reserve bank discount rate changes abstract previous studies have found that american equity values move inversely to the direction of announced discount rate changes by the federal reserve bank in this study of the return behavior of a simple of american depository receipts adrs to announcements of discount rate changes we find no evidence of such a relationship indeed adrs exhibit no significant response to either rate increases or decreases our results hold for both market realignment and policy motivated changes these findings suggest that adrs can provide diversification to the american investor as international economies and monetary policies remain incompletely integrated

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

profitability and profit sharing claims that profit sharing is a purely distributive wealth confiscation scheme without incentive effects due to free rider problems are based on neglect of cooperation and interaction in the workforce when these activities are difficult to monitor directly group incentives such as profit sharing can increase efficiency and maintain a superior nashequilibrium with strictly individual optimization with simultaneous wls tobit estimates we find here strong effects of profit sharing and worker ownership shares on residual owners return on capital in medium sized metal working firms in west germany complementing earlier results on productivity

fair wages in the open economy we show how an extended theory of fair wages can be incorporated in the two by two heckscher ohlin model an important feature of the model is the existence of involuntary unemployment several results stand out first there is no longer a simple relatio

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

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

profit sharing in a unionised economy with imperfect competition abstract this paper sets up a simple model of a unionised economy and shows that the introduction of profit sharing unambiguously reduces the unemployment rate the result arises because unions are assumed to care about the employment of their members but cannot bargain over employment directly profit sharing reduces the perceived cost in terms of worker income foregone of increasing employment in the firm in the economy as a whole the equilibrium unemployment rate falls

effects of changes in the discount rate on the foreign exchange value of the dollar 1973 to 1978 this paper attempts to analyze the effects of changes in the federal reserve s discount rate on the dollar s foreign exchange value if a discount rate increase were to signal a subsequent general increase in market interest rates one would expect u s dollar denominated assets to become relatively more attractive and the ensuing increased demand for dollar assets to tend to raise the dollar s exchange value the reverse would be true for discount rate decreases however in recent years the federal reserve s policy of moving the discount rate with a lag behind the federal funds rate means that market participants generally have sufficient information to anticipate changes in the discount rate when this is the case announcement effectsimmediate and discernible market responses to discount rate changes do not occur under special circumstances in 1978 however announcement effects could and did occur by increasing the discount rate when the federal funds discount rate differential was around normal levels and by increasing the discount rate by a larger amount than the market anticipated the federal reserve used the discount rate as a signal to market participants that it would use other operating instruments to bring about changes in market interest rates and the monetary base in their 1977 article raymond e lombra and raymond g torto ran a number of econometric tests for discount rate exogeneity on monthly data from january 1968 to may 1974 they concluded that discount rate movements were not independent of the spread between the discount rate and the federal funds rate given rational expectations therefore changes in the discount rate could not generate announcement effects lombra and torto 1977 this paper updates the work of lombra and torto and then attempts to test directly

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

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

worker participation and productivity in labor managed and participatory capitalist firms a meta analysis using meta analytic techniques the author synthesizes the results of 43 published studies to investigate the effects on productivity of various forms of worker participation worker participation in decision making mandated codetermination profit sharing worker ownership employee stock ownership or individual worker ownership of the firm s assets and collective ownership of assets workers collective ownership of reserves over which they have no individual claim he finds that codetermination laws are negatively associated with productivity but profit sharing worker ownership and worker participation in decision making are all positively associated with productivity all the observed correlations are stronger among labor managed firms firms owned and controlled by workers than among participatory capitalist firms firms adopting one or more participation schemes involving employees such as esops or quality circles

contract form wage flexibility and employment we begin with two uncontroversial hypotheses firm productivity is expensive to measure and employment entails relationship specific investments these assumptions imply that firms would optimally choose fixed wage contracts and complement these with bonus pay when measuring employee performance is not too costly these assumptions imply that under an optimal employment contract hours of work is less responsive while total compensation is more responsive to shocks under bonus pay contracts compared to fixed wage contracts using data from the panel study of income dynamics psid where shocks are proxied using the local unemployment rate we find strong support for these two implications

the relationship between union wage and profitability effects abstract this paper presents empirical evidence on the relationship between union effects on wages and on profitability as expected unions are found to increase wages albeit significantly in smaller firms only and to reduce profitability in a sample of british engineering firms over the period 1979 1982 the key question asked is whether the observed union effect on profitability is no more than a further manifestation of the observed wage effect estimates of profit equations normalised to take account of the union wage effect do not reject the hypothesis that it is

common pool equities an arbitrage based non cooperative solution to the common pool resource problem abstract it is proposed that a new type of property right termed a common pool equity can solve the common pool resource problem this equity may be presented to any firm that extracts from the resource for a share in profits it is shown that a profit arbitrage condition ensures that the market and socially efficient solutions correspond whenever market power is absent the cost externalities are fully internalized

is profit sharing participation evidence on alternative firm types from west germany abstract systematic differences are reported in the structural and performance characteristics of firms in subsamples based on a profit sharing and b participation in control employee involvement in decision making moreover whereas group b firms tend to conform to a theoretical participatory stereotype group a firms do not the coincidence of profit sharing and participation in control in a given firm is not surprisingly quite low these results cast doubt on current theoretical and policy arguments concerning productivity gains dependent on the joint use of participation and profit sharing but indicate that one precondition for weitzman type macro economic benefits of profit sharing in the absence of participation may be present

asset returns discount rate changes and market efficiency the primary purpose of this paper is to reconcile the previous findings of discount rate endogeneity with the presence of discount rate announcement effects in securities markets the crux of this reconciliation is the distinction between technical discount rate changes that are endogenous and nontechnical changes which contain some informative policy implications in essence we attempt to separate expected discount rate changes from unexpected changes or equivalently the expected component of discount rate changes from the unexpected component if markets are efficient the former should have no announcement effects while the latter may be associated with an announcement effect accordingly the focus of the empirical analysis is on the interaction between discount rate exogeneity the specific monetary policy regime and accouncement effects in addition we examine whether the behavior of these markets in the postannouncement period is consistent with the rapid price adjustment implied by market efficiency

the determination of profit margins in uk manufacturing this paper examines the determinants of profit margins in 91 u k manufacturing industries over the period 1983 86 it considers how the inclusion of labor market characteristics in empirical industrial organization specifications affects the estimated concentration margins relationship the empirical work pays detailed attention to the endogenous nature of variables derived from structural industrial organization models the authors report instrumental variables estimates of margins equations in which there emerges a significant role for labor market characteristics indeed both unionization and industrywide unemployment are found to depress profit margins the impact of concentration is seen to be biased downward when these variables are omitted

the incentive effects of dismissals efficiency wages piece rates and profit sharing the relation of several incentive schemes to productivity is studied with a particular emphasis on the effects and determinants of dismissals dismissals turn out to be positively but in a nonlinear way associated with productivity similarly profit sharing raises productivity wages and piece rates are insignificant profit sharing decreases the number of dismissals made by firms copyright 1991 by mit press

the information content of discount rate announcements and their effect on market interest rates this paper presents evidence that throughout the 1973 85 period the federal reserve systematically used certain types of discount rate a nnouncements to signal changes in its policy instrument the federal funds rate market participants understood the signals contained in d iscount rate announcements and used them to revise their expectations of the funds rate these revisions in funds rate expectations caused movements in treasury bill rates copyright 1988 by ohio state university press

profit sharing as macroeconomic policy when keynes came to sum up the central message of the general theory for the economics profession in a remarkable but by now long forgotten qje article of 1937 he began with a general philosophical disquisition on the behavior of mankind under uncertainty here as elsewhere keynes made it abundantly clear that he shared frank knight s distinction uncertainty did not mean risk that which is at least in principle reducible to well defined actuarial probabilities by uncertainty keynes intended i believe to convey the idea of ignorance that which is essentially due to insufficient or precarious knowledge of the mechanism by which the future is generated out of the past the keynesian scenario looks out over an economic world that is rife with uncertainty in that world expectations play an important dual role as both a manifestation of uncertainty and a cause of it such expectations are arbitrary to some degree because they can be based on almost anything including self fulfilling expectations of the behavior and expectations of others and as keynes pointed out being based on so flimsy a foundation these expectations of expectations are subject to sudden and violent changes it follows that while there may ultimately be some long run forces drawing it toward full employment capitalism may also have some deep seated tendencies toward shortrun instability unadulterated laissez faire is likely to be out of equilibrium much of the time and even when it is in equilibrium there is no guarantee of being in a good equilibrium whether in a state of bad equilibrium or merely in disequilibrium such coordination failures generate undesirable macroeconomic consequences like unemployment which can cause very significant welfare losses by the ultimate logic of this keynesian worldview then the stage is set for some form of government intervention to recoordinate the economy into a better configuration any such government policy will inevitably introduce some microeconomic distortions but as an empirical matter such losses tend to be small relative to the enormous welfare gains from having an economy operate at its full employment level such general considerations do not indicate the best form of government intervention to stabilize the macroeconomy indeed we do not currently have a general realistic framework within which a meta issue like that might be properly addressed nevertheless it is possible i believe to give some common sense criteria for desirable forms of government intervention it is my contention that economists have not been sufficiently imaginative in devising operational mechanisms or systems possessing advantageous macroeconomic properties the usual fiscal and monetary policies are to my mind sledgehammer like tactics for controlling unemployment and inflation they do the job but clumsily by brute force and they can leave a big mess afterwards i think it is possible to find subtler alternatives that operate more cleanly and with a softer touch by taking a page from the book of adam smith a good mechanism for fighting unemployment and inflation should have several noteworthy characteristics it should be decentralized based on the natural microeconomic incentives of a market like environment it should work more or less automatically keeping to a minimum the need for using discretionary government policy and in a highly uncertain world it should be robust in retaining its desirable macroeconomic characteristics over a wide range of possible situations or circumstances including some that are currently unforseen i want to argue that a superior form of government policy for combating unemploy department of economics massachusetts institute of technology cambridge ma 02139

comment on can the share economy conquer stagflation the main thrust of nordhaus paper seems to me to be the following there is no such thing as an excess demand for labor in a share economy and any propositions following from such an idea are at least suspect and probably wrong in my view the concept of excess demand for labor is merely a heuristic device that many people find useful as a way of thinking about what is happening in a share economy in a short run when pay parameters are quasi fixed relative to everything else but absolutely nothing substantive depends on using this phrase or even understanding what it means a reader of my economic journal article 1983 should understand this point quite clearly a shortrun equilibrium is there defined for a situation where pay parameters are quasi fixed and every other variable in the system including labor can be freely changed then a long run equilibrium where pay parameters are also free to vary is defined the basic result is that small changes in the neighborhood of a long run equilibrium may produce short run unemployment in a quasi fixed wage system but not in a quasi fixed share system this result is robust to various assumptions about labor mobility and survives a number of other alterations let me rephrase the basic argument without ever making use of the concept of excess demand for labor suppose that there are two kingdoms old lakeland and new lakeland which are physically identical in every way the economies of both identical twin kingdoms consist exclusively of fishing from the numerous privately owned lakes and exporting all of the fish at given world prices in old lakeland the monarch has decreed that the money wages to be paid throughout the year at each lake are to be posted on january 1 of that year and cannot be altered until january 1 of the next year in new lakeland the monarch has decreed that payment at each lake shall consist of a share of the value of the fish caught per worker the share fraction applying throughout the year is to be posted on january 1 of that year and cannot be altered until january 1 of the next year in both economies once the pay parameters wages or share fractions are posted workers are free to migrate to that highest paying lake which will employ them suppose that the world price of fish has been steady for as long

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

profit related pay prose discovered this paper estimates that in 1984 43 percent of british private sector establishments had some form of profit related pay regression results do not show that these establishments had statistically significant better financial performance cross ta bulations do not suggest that the establishments with income sharing schemes had noticeably greater employment growth or better industrial relations copyright 1988 by royal economic society

good jobs bad jobs and redistribution we analyse the question of optimal taxation in a dual economy when the policy maker is concerned about the distribution of labour income income inequality is caused by the presence of sunk capital investments which creates a good jobs sector due to the capture of quasi rents by trade unions with strong unions and high planner preference for income equality the optimal policy is a combination of investment subsidies and progressive income taxation if unions are weaker the policy maker may instead choose to tax investment

profit related pay and the u k small firm labour market this paper critically examines the relevance of profit related pay prp for the u k small firm sector since 1986 the u k government has actively encouraged prp which attracts generous tax breaks because it believed that prp would make pay more flexible downwards and would significantly improve employee identification morale and productivity an analysis of the theoretical arguments and the assumptions made regarding the nature of the u k small firm sector that underlay these claims suggests however that the likelihood of achieving either of these alleged benefits is small an appraisal of the available empirical evidence on the practical implementation and operation of prp schemes suggests that the tax relief simply encourages firms to introduce cosmetic schemes that have no appreciable impact upon the behaviour of either firms or employees moreover the experience of some firms that adopted prp schemes indicates that far from increasing morale and productivity prp often creates new tensions and conflict between owners and employees these and other unintended consequences illustrate the inherent difficulties of government attempts to use the tax system to alter the behaviour of agents engaged in a wide variety of complex and very heterogeneous bargaining situations

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

the effect of competition on executive compensation and incentives evidence from a quasi natural experiment the research was partially funded by fundacao para a ciencia e a tecnologia through the applied microeconomics research unit nima award no pest oe ege ui3181 2014

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

unions and the capture of economic rents an investigation using british firm level data this paper considers the relationship between unions and profitability in a sample of large british firms in 1984 and 1985 the initial finding is that unionised firms have significantly lower profit margins than otherwise comparable non union firms tests of whether the ability of unions to influence profit margins varies with the product and labour market characteristics of the firms in which they are located are then conducted the ability of unions to capture economic rents is seen to be significantly greater in firms which have a high market share and or operate in highly unionised industries

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

spatial price competition a semiparametric approach we investigate the nature of price competition among firms that produce differentiated products and compete in markets that are limited in extent we propose an instrumental variables series estimator for the matrix of cross price response coefficients demonstrate that our estimator is consistent and derive its asymptotic distribution our semiparametric approach allows us to discriminate among models of global competition in which all products compete with all others and local competition in which products compete only with their neighbors we apply our semiparametric estimator to data from u s wholesale gasoline markets and find that in this market competition is highly localized

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

steady state unemployment under profit sharing this paper demonstrates how asymmetric treatment of high seniority insider workers and non tenured outsiders gives rise to bad macroeconomic st eady states in a wage economy the framework uses a nash bargaining solution where workers may bargain over pay but firms control hiring profit sharing is then considered as an alternative payment mechanism having the automatically corrective incentive property that employers want to hire more outsiders given the assumptions of the model it is shown that widespread profit sharing results in lower unemployment and more output even though it is individually rational for insiders to prefer wages over profit shares copyright 1987 by royal economic society

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

margins concentration unions and the business cycle theory and evidence for britain abstract a number of recent studies have examined the cyclical relationship between price cost margins concentration and unions u s data has concluded that unions reduce margins margins vary over the cycle and concentration unionisation and the cycle interact in their effect on margins however there is almost no theory to account for these results we propose a simple theory that assumes only that there is overhead labour present at the firm this produces theoretical predictions that can explain these results and discriminate between existing theories we present results of our own using u k panel data and show similar findings to the u s

a theory of wage dispersion and job market segmentation job market segmentation refers to the idea that there tends to be a correlation among high wages high productivity high capital intensity high value added few quits relative to layoffs and low labor turnover this paper develops a model of wage dispersion and job market segmentation based on the very sparse assumption that the only departure from a strictly orthodox neoclassical world consists of wages being sticky in the short run implications of the model are explored and discussed

on weitzman s recession resistant employee compensation arrangements abstract this note presents a slight modification of the alternative pay systems discussed by weitzman 1983 the modification preserves the recession resistance property yet guarantees that the workers already in the firm will not become worse off by the conversion to the new pay system even when no other firm converts to it

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

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

unions and the financial performance of british private sector establishments summary this paper considers the relationship between unions and financial performance using data from the 1980 and 1984 workplace industrial relations surveys a qualitative indicator of financial performance is utilized and ordered probit estimates presented these indicate that unionized establishments are characterized by lower performance levels than are non union concerns the interface between union effects and relative market power is also explored and the ability of unions to extract a share of the available rents is found to be greater if the plants in which they are located possess a higher market share

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

the effects of profit sharing on employment wages stock returns and productivity evidence from uk micro data this paper provides evidence based on u k firm level data that 1 the authors cannot reject the view that profit sharing firms view the total level of remuneration as the marginal cost of labor which is contrary to much of weitzman s analysis 2 there is some support for the popular view that profit sharing raises total remuneration and can therefore be inflationary and 3 the introduction of profit sharing does lead to higher productivity but this combined with the employment reducing consequences of 2 leads the authors to conclude that the net employment effect is small and uncertain copyright 1990 by royal economic society

lump sum payments and profit sharing plans in the union sector of the united states economy lump sum payments and profit sharing plans became increasingly prevalent in union contracts in the u s economy in the 1980s this paper analyzes the relationship between lump sums profit sharing labor costs and employment in firm level panel data for the union sector of the u s economy in general the firm level data suggest that profit sharing has a statistically significant effect of lowering labor cost growth profit sharing also appears to increase employment growth and reduce employment variability but these results are not statistically significant this evidence is generally consistent with hypotheses regarding the introduction of performance related pay weitzman 1984 and 1985 the effects of lump sums on the other hand are not consistent with hypotheses regarding performance related pay lump sums do not appear to lower labor cost growth or increase employment growth and increase rather than decrease employment variability copyright 1993 by royal economic society

labor supply constraints profit sharing and volatility rents in an unstable economy i introduction since the end of the 1930s the portion of u s national income claimed by wages and salaries has been in the low sixty percents fluctuating between a low of 60 3 percent in 1942 and a high of 66 2 percent in 1970 the average has been slightly below 63 percent over this interval obviously we cannot know what the share distribution would have been had the economy traversed a perfectly smooth equilibrium growth path but does the observed long term average provide an unbiased estimate of long run equilibrium the question arises in the context of recent suggestions by martin weitzman 1984 and james meade 1986 and others that a move away from fixed wage contracting would reduce cyclical unemployment an oft cited consequence of the convexity of profits in output prices is that in the absence of adjustment costs price stabilization will reduce the long term average profits of firms 1 this is possible because the residual claimant retains the option of adjusting the level of operations in response to business conditions it is therefore interesting that profit sharing for the sake of macroeconomic stability has sometimes been recommended as distributionally neutral or isomorphic in its long run equilibrium properties 2 since profit sharing dilutes profit s claim on the residual share by giving labor a part we ask in this paper whether firm owners must thus give up the aforementioned rents to volatility the euler walras concept of a general equilibrium applies to an imaginary steady state of the economy in which all prices have settled down to their market clearing levels 3 marginal productivities determine the functional distribution of a constant overall income but in fact it is only appropriate to use the euler walras shares as the focal point around which cyclical forces influence the income shares if every characteristic of an economy in recession is symmetrically reversed under boom conditions full symmetry would require that firms be free to increase employment in good times to the same extent that they can reduce their employment levels in slack times this marks a very important distinction between the micro economics of fully competitive input markets and the macroeconomics of the business cycle if a cleared labor market is part of the definition of the walrasian equilibrium then any increase in boom state hiring must be limited by the elasticity of the overall labor supply in the aggregate this elasticity must be far from infinite this will be true whether we view workers as utility maximizers balancing income against leisure or as being forced at a corner solution to simply choose between employment and unemployment there is no equivalent limit short of the whole labor force to the number of workers who can be cut loose by the firm in a recession we construct here a very simple partial equilibrium model of a representative cobb douglas firm which is macroeconomic in the sense that labor constrained booms are assumed to alternate with recessions the firm is free to hire the optimal amount of labor within its labor supply constraint but is not free to alter labor contracts over the business cycle contracts are consistent with a cleared labor market only in the long run steady state 4 in the boom state of the economy the firm under fixed wages is able to obtain the full benefit of the gap which develops between the revenue product of labor and the wage if on the down side of the cycle unemployment is avoided by the use of profit sharing contracts the firm must sacrifice part of these benefits and more than 100 percent of the gains from the saved output may go to labor s share to the extent that these arguments apply in vivo their analytical validity can be demonstrated for a wide range of models more doubt is cast upon the distributional neutrality of profit sharing contracts but we might also question the basic nature of the fixed wage system