Profit‐Sharing and Wages: An Empirical Analysis Using French Data between 2000 and 2007

Abstract

Economic theory presents different arguments about how profit-sharing may affect wages. First, profit-sharing may substitute for the base wage. Second, profit-sharing can be interpreted as an 'efficiency wage' that adds to the base wage and increases total compensation. The existing empirical literature has not determined which of these arguments is valid. This article attempts to address this issue for France between 2000 and 2007. Based on a difference-in-differences selection model, we show that bonuses in firms adopting profit-sharing are too small to conclude whether it substitutes for or complements the base wage. While base wage levels are generally higher among profit-sharing firms, changes in the base wage over this period are lower among firms that have had profit-sharing for a number of years.

Tax breaks for incentive pay, productivity and wages: Evidence from a reform in Italy

“…In contrast, Weitzman (1983) predicts that profit sharing substitutes part of the base wage but is compensated by bonuses and has a neutral effect on total compensation. Analogously, as discussed by Delahaie and Duhautois (2019, p. 108), ‘the compensating wage differentials theory predicts that the base wage is lower when other forms of compensation such as profit‐sharing are improved ’ .…”

“…"> H2 .Tax breaks on PRP have uncertain effects on wages because they may promote the adoption of bonuses that add to the base wage, as expected by the efficiency wage theory. On the other hand, such fiscal relief may induce a substitution mechanism of part of the base wage, as expected by compensating wage differentials theory (see Weitzman, 1983 and Delahaie & Duhautois, 2019; Section 2.1). …”

“…Fiscal incentives may stimulate the adoption of wage bonuses, largely by reducing the cost to employers of adopting such pay schemes (Marsden & Belfield, 2010). Furthermore, tax breaks compensate employees for the risk to which they are exposed in the case of volatile and uncertain bonuses (Pérotin, & Robinson, 2002; Delahaie & Duhautois, 2019).…”

Contracts, pay and performance in the sport of kings: Evidence from horse racing

“…2013). Group bonuses and profit‐sharing schemes are fraught with free‐riding problems (Bogaard and Svejnar 2018; Delahaie and Duhautois 2019). Unintended consequences of performance‐related pay include worker injuries (Bender et al .…”

Strategic profit‐sharing in a unionized differentiated goods oligopoly

“…In practice, profit-sharing schemes take complex forms and contain a broad set of elements (OECD 1995).2 Below this size, the profit-sharing scheme is optional, but a firm that voluntarily decides to apply it has some tax exceptions. Recent research on French profit-sharing schemes shows that they are widespread in large public firms and are cash-based and that the existence of a profit-sharing scheme can also increase the base wage(Floquet et al 2016, Delahaie andDuhautois 2019).3 There are a few rare exemptions, such as the metalworkers in the USA, who are organized in a sector-wide union. In Japan, although negotiations take place at the firm level, few important institutions ensure some degree of bargaining centralization(Soskice 1990).…”