To Share or Not to Share? Why Profit Sharing Is So Hard to Implement

It is widely recognized that a Share Economy (SE) Pareto-dominates a FixedWage Economy (FWE) if unions care about employment. This begs the question, why profit sharing is less than ubiquitous. In this paper, we offer a solution to this conundrum by looking at particular transition arrangements from a FWE to a SE. We analytically show that despite the Pareto-dominance of a SE, the changeover from a FWE is rather difficult if a FWE is already in place. Thus, the mere statement of the Pareto-ranking between a SE and and FWE does not suffice. We need to establish under which institutional arrangements, the transition is likely to occur.