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Employee Profit Sharing and Labor Extraction in a Classical Model of Distribution and Growth

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  • Jaylson Jair da Silveira
  • Gilberto Tadeu Lima

Abstract

This paper sets forth a classical model of economic growth in which the distribution of income features the possibility of profit sharing with workers, as firms choose periodically between two labor-extraction compensation strategies. Firms choose to compensate workers with either solely a conventional wage or a share of profits on top of this conventional wage. In accordance with considerable empirical evidence, labor productivity in profit-sharing firms is higher than labor productivity in non-sharing firms. The frequency distribution of labor-extraction compensation strategies and labor productivity across firms is evolutionarily time-varying as driven by satisficing imitation dynamics. We derive two main results which carry relevant implications. First, heterogeneity in labor-extraction compensation strategies across firms can be a stable long-run equilibrium configuration. Second, though the convergence to a long-run, evolutionary equilibrium may occur with either a falling or increasing proportion of profit-sharing firms, the net share of profits in aggregate income and the rates of net profit, capital accumulation and economic growth, all nonetheless converge to their highest possible long-run equilibrium values

Suggested Citation

  • Jaylson Jair da Silveira & Gilberto Tadeu Lima, 2017. "Employee Profit Sharing and Labor Extraction in a Classical Model of Distribution and Growth," Working Papers, Department of Economics 2017_02, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2017wpecon02
    Note: https://www.tandfonline.com/doi/full/10.1080/09538259.2018.1429149
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    References listed on IDEAS

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    Cited by:

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    2. Tzu-Chun Sheng & Alvin Chang & Shu-Hui Lan & Shih-Cheng Li, 2020. "Analysis of the Dividend Policy Decision-Making Mechanism of Chinese and Taiwanese Lithium Battery Industries," Mathematics, MDPI, vol. 8(10), pages 1-16, October.

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    More about this item

    Keywords

    Profit sharing; income distribution; economic growth; evolutionary dynamics;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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