"We combine profit sharing for high-skilled workers and outsourcing of low-skilled tasks in a partly imperfect dual domestic labour market, which means that only low-skilled labour is represented by a labour union. In that framework we analyse how the implementation of profit sharing for high-skilled workers influences the amount of outsourcing and the labour market outcome for low-skilled worker. By doing this, we use some specific assumptions, e.g. exponentially increasing outsourcing costs or the wage for low-skilled workers will be determined by a union whereas the wage for high-skilled workers is given. Assuming that low-skilled labour and outsourcing are interchangeable we show that profit sharing has a positive effect on the wage for low-skilled workers and helps to decrease wage dispersion. However, under these circumstances, profit sharing enhances outsourcing. Concerning the employment effects for high- and low-skilled workers, we show that there is an employment reducing effect due to higher wages for low-skilled work, which can be offset by higher productivity of highly skilled workers, as the domestic labour inputs complement each other."

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