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Profit Sharing, Employment Stability, and Wage Growth

Posted: 23 Sep 2001  

Omar Azfar

University of Maryland - Center on Institutional Reform and the Informal Sector (IRIS)

Stephan Danninger

International Monetary Fund (Research Department)

Abstract

The authors conjecture that profit-sharing reduces turnover and thus increases expected returns to firm-specific human capital investments, so that the optimal levels of skill acquisition and investment in firm-specific skills rise and ultimately increase productivity. Empirical evidence from NLSY data on white men in nonunion jobs between 1988 and 1994 supports this hypothesis. Employees participating in profit-sharing plans were less likely than non-participants to separate from their jobs. They also received training more frequently and for longer durations. Finally, the authors show that profit-sharing was related to higher wage growth, indicating a faster rate of skill accumulation.

Suggested Citation

Azfar, Omar and Danninger, Stephan, Profit Sharing, Employment Stability, and Wage Growth. Industrial and Labor Relations Review, April 2001. Available at SSRN: https://ssrn.com/abstract=258866

Omar Azfar (Contact Author)

University of Maryland - Center on Institutional Reform and the Informal Sector (IRIS) ( email )

2105 Morrill Hall
College Park, MD 20742
United States

Stephan Danninger

International Monetary Fund (Research Department) ( email )

700 19th Street, NW
Washington, DC 20431
United States

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