Capital structure, wage bargaining and employment

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Title: Capital structure, wage bargaining and employment
Author: Koskela, Erkki ; Stenbacka, Rune
Organization: Suomen Pankki
Series: Suomen Pankin keskustelualoitteita
Series number: 16/2000
Year of publication: 2000
Publication date: 1.11.2000
Pages: 36 s.
Keywords: palkat; työllisyys; yritykset; pääoma; rahoitusrakenne; tulospalkkaus
Abstract: We offer a unified framework to analyze the determination of employment, employee effort, wages, profit sharing and capital structure when firms face stochastic revenue shocks.We apply a generalized Nash bargaining solution, which extends the wage bargaining literature by incorporating efficiency wage considerations, profit sharing and capital structure.The profit sharing instrument is demonstrated to have positive effort-augmenting and wage-moderating effects, which exactly offset the negative dilution effect in equilibrium.Leverage is shown to reduce employment and to have a strategic commitment value as a wage-moderating mechanism for firms facing unions in bilateral wage negotiations.Finally, some implications for equilibrium unemployment are discussed.Key words: wage bargaining, profit sharing, capital structure, employment

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