The Fixed Wage Puzzle: Why Profit Sharing Is So Hard to Implement

Abstract

It is well known that profit sharing arrangements Pareto-dominate fixed wage contracts. Share agreements are (far) less than ubiquitous, however. This paper offers a solution of this
”fixed wage puzzle“ by adopting a perspective of bounded rationality. We show that share arrangements that fulfill
”plausible“ constraints are not generally acceptable
to both firms and unions.