Profit Sharing for Increased Training Investments

This article investigates whether paying a profit‐related wage stimulates training investments. The results point to increased worker effort and wage flexibility as two channels through which profit sharing enhances investments in training. While both effects are found for young workers, for older workers, profit sharing mainly affects training investments through greater worker effort. The results suggest that profit sharing can be especially useful for stimulating training among older workers, a growing group in the labour force with a relatively weak labour market position due to a lack of training.     

Just a Question of Selection? The Causal Effect of Profit Sharing on a Firm's Performance

Using German firm panel data, we analyze the productivity effects of profit sharing. Because selectivity should pose a severe problem in this context, we combine matching with a difference‐in‐differences approach. This method enables us to rule out potential bias. Our results suggest that selectivity does indeed matter. Firms with very special characteristics apply profit sharing. We find that these establishments are already more productive before they decide to implement profit sharing. Nevertheless, after accounting for selection, our results show that the introduction of profit sharing leads to a significantly higher productivity in these firms.     

COLLUSION AND RESEARCH JOINT VENTURES*

I examine the question whether cooperation in R&D among firms producing similar products leads to product market collusion. Suppose that firms engage in a stochastic R&D race while maintaining the collusive equilibrium in a repeated‐game framework. Innovation under non‐cooperative R&D leads to an inter‐firm asymmetry, destabilizing collusion in pre‐discovery and post‐discovery periods. Innovation sharing under cooperative R&D preserves the symmetry and also increases total profit, thereby facilitating collusion. However, welfare may increase with cooperative R&D. I also examine the condition for collusion under licensing and compare the results.     

Profit sharing and market structure

We study how agents decide between working for firms with profit sharing and firms in which pay is based on individual productivity. Profit sharing has the disadvantages of free riding and adverse selection. The benefit of profit sharing is that it makes easier for agents to signal their productivity. We show that in equilibrium skilled agents are more likely to belong to profit sharing organizations. The analysis provides a framework for understanding the market structure of industries like law, accounting and consulting services in which both profit-sharing partnerships and “eat-what-you-kill” firms co-exist and compete with each other.     

Financial Participation: Does the Risk Transfer Story Hold in France?

Several articles report a positive effect of financial participation (profit sharing (PS) and employee share ownership) on firms' economic performance. This increase can be obtained in two main ways: by increasing the effort (extrinsic, intrinsic or commitment) of workers, directly or indirectly through worker selection; or by transferring more risk to the workers. The question is, of course, not neutral. Indeed, if the risk transfer story is true then it means that the increase of economic performance is obtained at the expense of workers, who take on the burden of more risks. The question is especially important in France where financial participation is associated with tax exemption for firms and where it is forbidden by law to substitute base wage and PS. The purpose of our article is to use an employer–employee dataset to answer the question of whether financial participation schemes are mainly designed as a risk transfer (from firms to workers) device.     

Pay Policies of Firms and Collective Wage Contracts—An Uneasy Partnership?

Theoretical considerations suggest that firms establish consistent internal wage structures and pay wage premiums of similar size across occupational groups. Strong evidence for the existence of coherent employer pay policies across occupations is found using a German employer–employee data set. However, firm‐specific elements of wage policies are less prevalent in firms applying industry‐level collective contracts than in firms with individual‐level wage contracts.     

The Economic Impact of the Boston Living Wage Ordinance*

This paper presents one of the first quantitative assessments of the effect living wage laws have had on firms covered by their mandate. Applying difference‐in‐difference estimation methods to survey data from Boston, Massachusetts, I find little evidence of reduced employment or hours worked, following living wage implementation. Instead, there is strong evidence that firms actually shifted from part‐time towards full‐time staffing as a result of Boston's living wage law. Estimates also reveal a substantial degree of wage compression within firms who raised wages. Finding no evidence of reduced employment or hours, this paper uses qualitative survey data to examine other ways in which firms may have adjusted to higher wages. I find some evidence that covered firms have taken lower profits as a way to adjust to the Boston law.     

Do Broad‐based Employee Ownership,Profit Sharing and Stock Options Help the Best Firms Do Even Better?

This article analyses the linkages among group incentive methods of compensation (broad‐based employee ownership, profit sharing and stock options), labour practices, worker assessments of workplace culture, turnover and firm performance in firms that applied to the ‘100 Best Companies to Work For in America’ competition from 2005 to 2007. Although employers with good labour practices self‐select into the 100 Best Companies firms sample, which should bias the analysis against finding strong associations among modes of compensation, labour policies and outcomes, we find that employees in the firms that use group incentive pay more extensively participate more in decisions, have greater information sharing, trust supervisors more and report a more positive workplace culture than in other companies. The combination of group incentive pay with policies that empower employees and create a positive workplace culture reduces voluntary turnover and increases employee intent to stay and raises return on equity.     

British Evidence on The Employment Effects of Profit Sharing

A sample of British firms with diverse sharing arrangements is used to investigate the effects of profit sharing on employment levels. Employment effects are sometimes significant, but this depends upon the measure of profit sharing, how the dynamics are modeled, and whether measures of employee participation in decision making are included in the estimating equation. Using a continuous measure of profit sharing, employment effects, which typically range from -6 per cent to 6 per cent, are much more modest than those obtained by some other researchers. Most findings are not dramatically affected by estimating the specifications separately for discrete time periods, for individual industries, or for larger firms.     

HRM Practices and the Within‐Firm Gender Wage Gap

The effect of HRM practices on the within‐firm gender gap in wages in manufacturing is investigated merging a 1999 survey on work practices among Danish firms to matched employer–employee panel data. Self‐managed teams, project organization and job rotation schemes are the most widely introduced practices. Accounting for non‐randomness in adoption, the pay gap is reduced among hourly paid workers but increases among salaried workers. Considering practices individually, wage gains from adoption accrue to males except for salaried workers in firms that adopt project organization and for hourly paid workers in firms that introduce quality control circles.     

Firm‐Size Wage Gaps along the Formal‐Informal Divide: Theory and Evidence

Observationally equivalent workers are paid higher wages in larger firms. This fact is often called the “firm‐size wage gap” and is regarded as a key empirical puzzle. Using microlevel data from Turkey, we document a new stylized fact: The firm‐size wage gap is more pronounced for informal (unregistered) jobs than for formal (registered) jobs. To explain this fact, we develop a two‐stage wage‐posting game with market imperfections and segmented markets, the solution to which produces wages as a function of firm size in a well‐defined subgame‐perfect equilibrium. The model proposes two explanations. First, taxes on formal employment generate a wedge between formal and informal size wage gaps. Thus, government policy can potentially affect the magnitude of the firm‐size wage gaps. The second explanation features a market‐based framework with strategic interactions. Relative to small firms, large firms typically post higher wages for both formal and informal jobs. A high‐wage formal job attracts a larger pool of applicants than a high‐wage informal job. The larger pool of applicants for the formal job, in turn, allows the firm to somewhat lower the initial wage offer, while this second‐round effect is negligible for informal jobs. As a result, size differentials are lower in formal jobs than informal jobs. We argue that the observed patterns in the use of social connections in job search and heterogeneity in job preferences can be used to justify the validity of this second mechanism.     

Minimum Wages,Employer‐Provided Health Insurance,and the Non‐discrimination Law

This article exploits cross‐state variation in minimum wages to investigate the impact of minimum wage changes on employer‐provided health insurance. In contrast to the existing empirical literature, this article considers an environment where some firms are constrained by non‐discrimination laws that govern the provision of health insurance. For these firms, minimum wage changes do not reduce the probability that workers will receive employer‐provided health insurance. For firms not covered by the non‐discrimination law, and free to tailor their fringe benefits, low‐skilled workers experience a disproportionate reduction in the availability and generosity of health insurance after a minimum wage increase.     

The Impact of Wage Bargaining Regime on Firm‐Level Competitiveness and Wage Inequality: The Case of Ireland

This paper uses a linked employer‐employee dataset to analyze the impact of institutional wage bargaining regimes on average labor costs and within‐firm wage dispersion in private sector companies in Ireland. The results show that while centralized bargaining reduced labor costs within both the indigenous and foreign‐owned sectors, the relative advantage was greater among foreign‐owned firms. The analysis suggests that there are potentially large competitiveness gains to multinational companies that locate in countries implementing a centralized bargaining system. Furthermore, the results provide additional support to the view that collective bargaining reduces within‐firm wage inequality.     

Estimating the Wage Premium of Collective Wage Contracts: Evidence from Longitudinal Linked Employer–Employee Data

Using a large‐scale linked employer–employee dataset from western Germany, this paper presents new evidence on the wage premium of collective bargaining contracts. In contrast to previous studies, we seek to assess the extent to which differences in wages between workers in covered and uncovered firms arise from the nonrandom selection of workers and firms into collective bargaining coverage. By measuring the relative wage changes of workers employed in firms that change contract status, we obtain estimates that depart considerably from previous results relying on cross‐sectional data. Results from analyzing separate transitions show that leaving industry‐level contracts is associated with subsequent wage losses. However, the results from a trend‐adjusted difference‐in‐difference approach indicate that particularly the transitions to no coverage appear to be associated with negative shocks. Overall, our findings provide no evidence of a “true” wage effect of leaving wage bargaining, once we account for differences in pretransition wage growth.     

Extreme Wages,Performance, and Superstars in a Market for Footballers

We study the determinants of superstar wage effects, asking whether productivity or popularity‐based explanations are more appropriate. We use longitudinal wage and performance data for workers (players) and firms (teams) from a particular market for sports talent: Major League Soccer (MLS) in the United States. We find evidence that the top earners, whose annual salaries are mostly not accounted for by their past MLS performances, when compared to other footballers, are paid more because they attract significantly higher stadium attendances and thus revenues. There is no evidence that higher residual salary spending by the teams affects their relative performance in football terms, or that the amounts the teams spend on actual talent affect attendances. Taken together, these results suggest that a popularity‐based explanation of superstar wage effects is appropriate among the top earners in this labor market.     

Alleviating managerial dilemmas in human‐capital‐intensive firms through incentives: Evidence from M&A legal advisors

Research summary: We examine how human‐capital‐intensive firms deploy their human assets and how firm‐specific human capital interacts with incentives to influence this deployment. Our empirical context is the UK M&A legal market, where micro‐data enable us to observe the allocation of lawyers to M&A mandates under different incentive regimes. We find that law firms actively equalize the workload among their lawyers to seek efficiency gains, while “stretching” lawyers with high firm‐specific capital to a greater extent. However, lawyers with high firm‐specific capital also appear to influence the staffing process in their favor, leading to unbalanced allocations and less sharing of projects and clients. Paradoxically, law firms may adopt a seniority‐based rent‐sharing system that weakens individual incentives to mitigate the impact of incentive conflicts on resource deployment. Managerial summary: The study highlights the dilemmas when professional service firms allocate their key individuals to incoming projects, and the role that monetary incentives play in aggravating or alleviating these dilemmas. In the context of UK M&A law firms, we find that partners have a tendency to be attached to too many projects and not to share enough work, which is exacerbated when individual monetary incentives are stronger. Firms adopting a seniority based incentive system (lockstep system) are able to alleviate this effect. This implies that there is a trade‐off between rewarding personal performance versus balancing workloads and fostering collaboration among professionals. Copyright © 2015 John Wiley & Sons, Ltd.     

Is Profit Sharing Productive? A Meta-Regression Analysis

In this article, we re-examine the relationship between group-based profit sharing and productivity. Our meta-regression analysis of 355 estimates from 56 studies controls for publication selection and misspecification biases and investigates the impact of firm-level unionisation. Profit sharing is positively related to productivity on average, with a stronger relationship where there is higher unionisation. The positive effect of profit sharing on productivity is larger in cooperative firms and in transition economies. Separate meta-analysis of interactions suggests that profit sharing works better in combination with capital investment and employee participation in decisions.     

The Extent of Rent Sharing along the Wage Distribution

The relation between rent sharing and wages has generally been evaluated on average wages. This article uses a unique employer–employee panel database to investigate the extent of rent sharing along the wage distribution in Italy. We apply quantile regression techniques and control for national level bargaining, unobserved worker and firm heterogeneity and endogeneity. Our findings show that the extent of rent sharing decreases along the wage distribution, suggesting that unskilled workers benefit most from firms’ rents. By applying quantile regressions by occupational categories, we show that the decreasing pattern is mainly driven by blue collar workers, while estimates for white collars are higher and basically constant along the wage distribution. We also provide evidence that unions might represent one of the drivers of our findings.     

Opportunity costs and non‐scale free capabilities: profit maximization,corporate scope,and profit margins

The resource‐based view on firm diversification, subsequent to Penrose ( 1959 ), has focused primarily on the fungibility of resources across domains. We make a clear analytical distinction between scale free capabilities and those that are subject to opportunity costs and must be allocated to one use or another, thereby shifting the discourse back to Penrose's ( 1959 ) original argument regarding the stock of organizational capabilities. The existence of resources and capabilities that must be allocated across alternative uses implies that profit‐maximizing diversification decisions should be based upon the opportunity cost of their use in one domain or another. This opportunity cost logic provides a rational explanation for the divergence between total profits and profit margins. Firms make profit‐maximizing decisions to increase total profit via diversification when the industries in which they are currently competing become relatively mature. Due to the spreading of these capabilities across more segments, we may observe that firms' profit‐maximizing diversification actions lead to total profit growth but lower average returns. The model provides an alternative explanation for empirical observations regarding the diversification discount. The self‐selection effect noted in recent work in corporate finance may not be indicative of inferior capabilities of diversifying firms but of the limited opportunity contexts in which these firms are operating. Copyright © 2010 John Wiley & Sons, Ltd.     

Collective Bargaining and Within-firm Wage Dispersion in Spain

This paper analyses the effect of collective bargaining on within‐firm wage dispersion for the case of Spain. What is relevant in the Spanish case is to compare the effect of the two basic levels of bargaining (firm and sector) on wage dispersion. By using the Oaxaca–Blinder decomposition, this paper concludes that collective agreements at firm level have a negative effect on wage dispersion. At the same time, firms that have signed these types of agreements show greater wage dispersion than those covered by agreements at the sector level, owing to the positive and compensating effect of firms’ and workers’ features.