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Profit Sharing and Employment Stability

Lutz Bellmann and Iris Möller

Schmalenbach Business Review (sbr), 2010, vol. 62, issue 1, 73-92

Abstract: We investigate the effect of profit sharing on establishments’ hirings, layoffs, and quits. Our principal argument is that profit sharing increases wage flexibility and also aligns wages with a changing marginal revenue product. Because employment stability makes their human capital investment more profitable and increases labor productivity and morale, firms might choose to adopt profit-sharing schemes. Our empirical analysis is based on the IAB establishment Panel. We estimate cross-section time-series regressions and apply state-of-the-art matching estimators that explicitly account for observed and unobserved heterogeneity. in the regressions we find a significantly positive effect of profit sharing on hirings and a significantly negative effect on layoffs, but the results obtained by the matching estimators are not significant.

Keywords: Compensation; Incentives; Labor Turnover; Matching; Profit Sharing (search for similar items in EconPapers)
JEL-codes: C15 C25 J24 J33 J63 M52 (search for similar items in EconPapers)
Date: 2010
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Handle: RePEc:sbr:abstra:v:62:y:2010:i:1:p:73-92