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Profit-Sharing and Employment Variability: Microeconomic Evidence on the Weitzman Theory

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  • Douglas L. Kruse

Abstract

This study tests an important implication of Weitzman's profit-sharing theory—the prediction that profit-sharing firms will have more stable employment than fixed-wage firms—using panel data on 2,976 publicly traded companies for the years 1971–85. Profit-sharing manufacturing firms are found to have had smaller employment decreases than other manufacturing firms during business downturns: when the unemployment rate increased by one point, manufacturing firms in which all employees participated in a profit-sharing pension plan had a 2.0% decrease in employment, compared to a 3.1% decrease for nonprofit-sharing manufacturing firms. No significant differences in employment stability were found, however, between profit-sharing and non-profit-sharing firms in the non-manufacturing sector.

Suggested Citation

  • Douglas L. Kruse, 1991. "Profit-Sharing and Employment Variability: Microeconomic Evidence on the Weitzman Theory," ILR Review, Cornell University, ILR School, vol. 44(3), pages 437-453, April.
    • Handle: RePEc:sae:ilrrev:v:44:y:1991:i:3:p:437-453
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    Cited by:

    1. Jones, Derek C. & Kalmi, Panu & Kato, Takao & Mäkinen, Mikko, 2017. "Worker separation under performance pay: Empirical evidence from Finland," Bank of Finland Research Discussion Papers 33/2017, Bank of Finland.
    2. Bossavie, Laurent & Cho, Yoonyoung & Heath, Rachel, 2023. "The effects of international scrutiny on manufacturing workers: Evidence from the Rana Plaza collapse in Bangladesh," Journal of Development Economics, Elsevier, vol. 163(C).
    3. Derek C. Jones & Takao Kato & Jeffrey Pliskin, 1994. "Profit Sharing and Gainsharing: A Review of Theory, Incidence, and Effects," Economics Working Paper Archive wp_125, Levy Economics Institute.
    4. Ammon, Norbert, 1998. "Why Hedge? - A Critical Review of Theory and Empirical Evidence -," ZEW Discussion Papers 98-18, ZEW - Leibniz Centre for European Economic Research.
    5. repec:zbw:bofrdp:2017_033 is not listed on IDEAS
    6. Fidan Ana Kurtulus & Douglas Kruse, 2018. "An Empirical Analysis of the Relationship between Employee Ownership and Employment Stability in the US: 1999–2011," British Journal of Industrial Relations, London School of Economics, vol. 56(2), pages 245-291, June.
    7. Jones, Derek C. & Kalmi, Panu & Kato, Takao & Mäkinen, Mikko, 2017. "Worker separation under performance pay : Empirical evidence from Finland," Research Discussion Papers 33/2017, Bank of Finland.
    8. Cecilia NAVARRA, 2016. "Employment Stabilization Inside Firms: An Empirical Investigation Of Worker Cooperatives," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 87(4), pages 563-585, December.
    9. Osveh Esmaeelinezhad & Ali Bin Boerhannoeddin & Kuppusamy Singaravelloo, 2015. "The Effects of Corporate Social Responsibility Dimensions on Employee Engagement in Iran," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(3), pages 261-276, March.
    10. Cecilia Navarra & Ermanno Tortia, 2014. "Employer Moral Hazard, Wage Rigidity, and Worker Cooperatives: A Theoretical Appraisal," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(3), pages 707-726.
    11. Bae, Jaewan & Kang, Jangkoo, 2024. "Asset pricing implications of firms' profit sharing," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).
    12. Gary W. Florkowski, 1994. "Employment Growth and Stability under Profit-Sharing: A Longitudinal Study," British Journal of Industrial Relations, London School of Economics, vol. 32(3), pages 303-318, September.
    13. Cecilia Navarra, 2013. "How do worker cooperatives stabilize employment? The role of profit reinvestment into locked assets," Working Papers 1307, University of Namur, Department of Economics.

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