Type: Working Paper
The share economy : plausibility and viability of Weitzman's model
Working Paper, Florence : European University Institute, 1985EUI Working Papers, 194, [ECO]
NUTI, Domenico Mario, The share economy : plausibility and viability of Weitzman's model, Florence : European University Institute, 1985EUI Working Papers, 194, [ECO] - https://hdl.handle.net/1814/23102
Retrieved from Cadmus, EUI Research Repository
In the last two years M.L. Weitzman (M.I.T.) has been proposing the replacement of the fixed wage contract by a form of generalised sharing contract whereby at least a substantial component of workers' earnings is made of a stake in their enterprise performance. This institutional change is expected to guarantee the achievement and maintenance of full employment of labour without either inflationary pressures or sacrifices in real wages; on the contrary; the general price level would fall and real wages would increase, due to output expansion in conditions of monopolistic competition between firms. These results derive from the decoupling of the marginal cost of labour from the level of average earnings, which is implicit in the sharing contract. In this paper a summary of the proposal and a comparison with other share formulas are followed by a number of critical reflections. First the plausibility of Weitzman's assumptions is challenged, for the implicit neglect of keynesian and classical unemployment, of the persistent inflationary feedbacks of full employment and, above all, the lack of workers' participation in enterprise decision making which is postulated by the model in spite of continued full employment. Then the viability - understood as institutional stability - of Weitzman's model is questioned even within the framework of its own assumptions. It is argued that the model has systemic instability because of its proneness to mergers in the short run, the entry of non-income-sharing new firms in the medium run and, above all, a built-in tendency to revert to the wage economy in the long run. In any case, if Weitzman's model is accepted, the gradual introduction of a wage subsidy is shown to have the same beneficial effects of income sharing without any of its drawbacks.
First made available online in May 2015.
Cadmus permanent link: https://hdl.handle.net/1814/23102
Series/Number: EUI Working Papers; 194; [ECO]
Publisher: European University Institute