PROFIT SHARING AND EMPLOYEE OWNERSHIP: POLICY IMPLICATIONS

Daniel J. B. Mitchell

Contemporary Economic Policy, 1995, vol. 13, issue 2, 16-25

Abstract: Various arguments extol public encouragement of profit sharing and Employee Stock Ownership Plans (ESOPs). Generally, advocates of public intervention cite externalities (market failure), provision of merit goods, or social transformation as bases for their arguments. To the extent that profit sharing and ESOPs increase productivity or reduce employer costs, no case exists for public intervention, since such advantages are internalized. Although Congress views retirement saving as a merit good, deferred profit sharing and ESOPs are no more deserving of public subsidy on that basis than are other forms of saving, such as pensions. Finally, the notion that ESOPs promote a social transformation by redistributing equity is untenable. One can make a case for government efforts to spread data and information about these plans. The potential macro stabilizing effects of profit sharing—but not ESOPs—provide a rationale for a tax subsidy to the former.

Date: 1995
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