Effect of Market Competition on Profit and Wage Shares

An economy experiences two simultaneous shifts: first, a reduction in barriers to entry for new businesses, leading to more firms competing for customers; second, a strengthening of collective bargaining rights, increasing the power of workers in wage negotiations. According to the price-setting model, what is the most likely impact of these combined changes on the typical firm's profit share per worker (σ)?

Product Market Competition and Profit Share

Market Dynamics and Profit Share in the Tech Sector

Match each change in market conditions to its most direct impact on the components that determine a firm's profit share per worker (σ).

A government enacts new legislation that significantly weakens the collective bargaining power of labor unions. According to the price-setting model, this change will, all else being equal, cause the typical firm's profit share per worker (σ) to decrease.

Relationship Between Market Competition, Profit Share (σ), and Wage Share