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Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment *
Author(s) -
Koskela Erkki,
Stenbacka Rune
Publication year - 2004
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.0347-0520.2004.00383.x
Subject(s) - economics , unemployment , profit sharing , partial equilibrium , bargaining power , general equilibrium theory , bankruptcy , profit (economics) , market power , monetary economics , labour economics , microeconomics , macroeconomics , monopoly , finance
We investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing. In a partial equilibrium with exogenous outside options, increased bargaining power of banks has adverse employment effects. In a general equilibrium with endogenous outside options, this relationship is frequently reversed; reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections—measured by the bargaining power of trade unions—are sufficiently strong and the benefit–replacement ratio is sufficiently high. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.