Profit Sharing, Wage Formation and FlexibleOutsourcing under Labor Market Imperfection

We combine profit sharing and outsourcing, if the wage for worker is decided by a labor unionto analyze how does the implementation of profit sharing affect individual effort and thebargained wage and thus outsourcing? We find that profit sharing and the wage level havean individual effort-augmenting effect and therefore increase productivity. We also find thatthe wage effect of profit sharing is ambiguous. There is a wage decreasing substitution effect,but on the other hand, there is a wage increasing effect via labor demand elasticity so thatoutsourcing and employment effects are also ambiguous....