Profit Sharing, Unions and Investment: An Extension

Abstract

This note comments on and extends the paper by Hoel and Moene (1988), hereafter HM, which analysed the effect of profit sharing (hereafter PS) on an individual firm and its employees. HM assumed that the existence and extent of PS is a matter for bargaining between firms and unions. However, evidence suggests that in practice it is almost always determined unilaterally by firms as a part of their right to manage. In this note I therefore analyze the circumstances in which firms will choose to introduce sharing schemes as part of a net profit maximizing strategy whereby they retain the right to manage. The framework is otherwise similar to HM's.

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