Abstract
This paper discusses the incentives to change wages and employment within a company following an employee buy-out. The equilibrium is a two stage sequential one, the purchase decision being followed by the wage and employment decision. The main point we make is that if the pre buy-out wage and employment level is on the labour demand curve then after the buy-out the employees will never choose the wage that was paid before the buy-out. Furthermore, if the employees own all of the company then they will choose to reduce the wage to the competitive wage and may increase employment to the level that a profit maximizing firm would choose if it were paying the competitive wage. It may, however, constrain employment below this level.
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