The Role of Profit Sharing in a Dual Labour Marketwith Flexible Outsourcing

We analyze the following questions associated with flexible outsourcing under partlyimperfect dual domestic labour markets, where high skilled workers participate in firm’s profitvia profit sharing: How does the implementation of profit sharing influence flexibleoutsourcing? What is the relationship between outsourcing cost, profit sharing and wages?We show that profit sharing has a positive effect on low skilled wage and thus an outsourcingenhancing character. The wages of both types of labour are negatively correlated and loweroutsourcing cost can increase the wage dispersion by decreasing the low skilled wage andraising the high skilled wage. The overall effect of profit sharing on high skilled wage isambiguous due to a positive direct effect and a negative indirect effect via the low skilledwage....