This paper develops a theoretical model that relates the degree of goods-market competition with the extent of profit sharing. The authors multisector framework indicates that increased competition in goods markets leads to an increased weighting on firm profits in an optimally indexed contract....

This paper shows how heterogeneity wage-setting and a link between nominal wage flexibility andg goods-market competition rise in a multisector economy that is affected by aggregate and sector-specific shocks. Aggregate volatility increases the variance of real contract wages, whereas sectoral...