Just a Question of Selection? The Causal Effect of Profit Sharing on a Firm's Performance
24 Pages Posted: 3 Jun 2016
Date Written: July 2016
Using German firm panel data, we analyze the productivity effects of profit sharing. Because selectivity should pose a severe problem in this context, we combine matching with a difference‐in‐differences approach. This method enables us to rule out potential bias. Our results suggest that selectivity does indeed matter. Firms with very special characteristics apply profit sharing. We find that these establishments are already more productive before they decide to implement profit sharing. Nevertheless, after accounting for selection, our results show that the introduction of profit sharing leads to a significantly higher productivity in these firms.
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