Profit sharing, labour share and financial structure

• Published in: Evolutionary and institutional economics review Vol. 15; no. 1; pp. 89 - 111
• Main Authors: Ninomiya, Kenshiro, Takami, Hiroyuki
• Format: Journal Article
• Language: English
• Published: Tokyo Springer Japan 01.06.2018; Springer Nature B.V
• Subjects: Bargaining; Compensation; Duopoly; Economic conditions; Economic theory; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Employment; History of Economic Thought/Methodology; Income distribution; Labor unions; Monopolistic competition; Political Economy/Economic Systems; Price levels; Production functions; Profit margins; Recessions; Social Policy; Stagflation; Wage rates; Wages & salaries; Workers; Japan; Labour share; D43; Financial structure; Bargaining power of unions; Wage- and profit-led regimes; E32; E37; J33; Profit-Sharing rule
• ISSN: 1349-4961; 2188-2096
• DOI: 10.1007/s40844-017-0090-5

In this paper, we study the effects of the Profit-Sharing rule on an oligopolistic economy. Many believed that the Japanese economy was strong because Japan adopted the Profit-Sharing rule (or the Japanese management system) in the 1980s. However, Japan was trapped in a prolonged recession after the collapse of the bubble economy in the 1990s. The Japanese management system and its regulated financial system have come under criticism as factors of the crisis. We derive a condition that a firm and its union adopt the Profit-Sharing rule voluntarily and construct a macrodynamic model of financial instability. We demonstrate in this study that the Profit-Sharing rule in Japan further stabilises the economy when the financial structure of the economy is already stable.