Profit Sharing, Employment Stability, and Wage Growth
University of Maryland - Center on Institutional Reform and the Informal Sector (IRIS)
International Monetary Fund (Research Department)
Industrial and Labor Relations Review, April 2001
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.
Date posted: September 23, 2001