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

Jaylson Silveira () and Gilberto Lima

Review of Political Economy, 2017, vol. 29, issue 4, 613-635

Abstract: This article sets out 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. Workers are homogeneous with regard to labor power, and firms choose to compensate them with either only a conventional wage or a share of profits on top of this conventional wage. Empirical evidence shows that labor productivity (i.e. labor extraction) in profit-sharing firms is higher than labor productivity in non-sharing firms. The frequency distribution of labor-extraction employee compensation strategies and labor productivity across firms is time-variant, being driven by satisficing imitation dynamics from which we derive two significant results. First, heterogeneity in labor-extraction compensation strategies across firms, and hence earnings inequality across workers can be a stable long-run equilibrium outcome. Second, although convergence to a long-run equilibrium may occur with either a falling or increasing proportion of profit-sharing firms, the share of net profits in income and the rates of net profit, capital accumulation and economic growth nevertheless all converge to the highest possible long-run equilibrium values.

Date: 2017
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Related works:
Working Paper: EMPLOYEE PROFIT SHARING AND LABOR EXTRACTION IN A CLASSICAL MODEL OF DISTRIBUTION AND GROWTH (2018)
Working Paper: Employee Profit Sharing and Labor Extraction in a Classical Model of Distribution and Growth (2017)
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DOI: 10.1080/09538259.2018.1429149

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