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LABOR SUPPLY CONSTRAINTS, PROFIT‐SHARING AND VOLATILITY RENTS IN AN UNSTABLE ECONOMY
Author(s) -
Morton Peter J.
Publication year - 1994
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1994.tb01333.x
Subject(s) - economics , unemployment , economic rent , wage , profit (economics) , volatility (finance) , microeconomics , labour economics , econometrics , macroeconomics
Contracts which pay part of labor compensation as a profit share may be made distributionally identical to fixed‐wage contracts under long‐run equilibrium conditions, but this does not guarantee distributional equivalence in the presence of mean‐preserving turbulence around the equilibrium state. This paper demonstrates how, given a full‐employment constraint, the small‐scale introduction of share contracting reduces cyclical unemployment but lowers cyclical average profits compared to a fixed‐wage regime. As share contracting is extended to cover the entire wage bill, the tendency is to freeze factor shares at their long‐run equilibrium values, regardless of shocks.