Arbeitspapier

Profit sharing and relative consumption

Traditionally, it has been argued that profit sharing can increase employment and welfare because it lowers marginal labour costs without reducing total cost or labour income. In this paper, we show that profit sharing can also represent a Pareto-improvement if labour supply is excessive due to relative consumption effects. Mandatory profit sharing reduces wages. If the rise in profit income keeps total income constant, profit sharing will have no income but only a substitution effect. Since labour supply is excessive, profit sharing constitutes a Pareto-improvement.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 3970

Classification
Wirtschaft
Externalities
Time Allocation and Labor Supply
Compensation Packages; Payment Methods
Subject
labour supply
profit sharing
relative consumption
status concerns

Event
Geistige Schöpfung
(who)
Goerke, Laszlo
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
2012

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Goerke, Laszlo
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2012

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