Is profit-sharing participation?: Evidence on alternative firm types from West Germany

Systematic differences are reported in the structural and performance characteristics of firms in subsamples based on (a) profit-sharing and (b) participation-in-control (employee-involvement in decision-making). Moreover, whereas group (b) firms tend to conform to a theoretical, participatory stereotype, group (a) firms do not. The coincidence of profit-sharing and participation-in-control in a given firm is not surprisingly quite low. These results cast doubt on current theoretical and policy arguments concerning productivity gains dependent on the joint use of participation and profit-sharing, but indicate that one precondition for Weitzman-type macro-economic benefits of profit-sharing in the absence of participation may be present.     

Explaining Patterns of Profit-Sharing Activity

This paper compares the characteristics of firms that adopt deferred profit-sharing plans with those that adopt pension plans. Tax reports from a sample of 6, 000 firms in various industries are incorporated into logistic regression equations that predict whether these firms will have pension or deferred profit-sharing plans. The evidence suggests that custom in the labor market may play the greatest role in influencing the choice between the two plans.     

Indifference to profit-sharing is consistent

The incentive for a firm unilaterally to switch from a conventional wage to profit-sharing is analyzed for a duopoly as a function of the degree of market power. The point of indifference is shown to be the consistent-conjectures mode of conduct; more competitive firms will not switch while less competitive firms will switch. A proportional tax on corporate profits will not alter the incentive of a firm to adopt or reject profit-sharing.This paper embodies the views of the author and does not necessarily reflect the views of the Federal Reserve System or of the Federal Reserve Bank of Philadelphia.     

Profit-sharing as a cure for unemployment: Some doubts

In this paper, we argue that given that a wage system is preferred to profit-sharing in an insider-outsider model, tax incentives to encourage profit-sharing could be dissipated by the use of cosmetic schemes. The same may also be true in models in which unions care about employment. Hence, we should be cautious about accepting Weitzman's claim that profit-sharing will reduce unemployment.     

Why Do Firms Adopt Profit-Sharing and Employee Ownership Plans?

Profit-sharing and employee ownership in companies have attracted considerable interest, yet there has been little research on factors predicting the adoption and maintenance of these plans. This study uses new data from a survey of 500 US public companies, and panel data on corporate financial variables, to examine factors predicting the presence and adoption of profit- sharing and employee stock ownership plans (ESOPs) in the 1975–91 period. Several findings support productivity-related motivations for such plans (including higher R&D levels among old profit-sharing firms, and recent adoption of job enrichment programmes among new profit-sharing firms), while others support flexibility-related motivations (including higher variance in profits prior to the adoption of profit-sharing plans and ESOPs). Unionized firms were less likely to have either type of plan in 1975, but equally likely to adopt them subsequently (often in concessionary contracts). Comparisons of cross-sectional and panel results illustrate advantages of panel data in disentangling the causes and effects of profit-sharing and ESOPs.     

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.     

The Stampede Toward Defined Contribution Pension Plans: Fact or Fiction?

This paper questions recent conclusions that the trend in primary plan type toward defined contribution plans and away from defined benefit plans is due to increased pension regulation. Analysis of data from IRS 5500 filings by pension administrators shows that at least half of the trend is due to a shift in employment mix toward firms with industry, size, and union status that have historically been associated with lower defined benefit plan rates. Not more than half of the trend can be attributed to a "stampede" by firms with given industry, size, and union status toward defined contribution pension coverage.     

Profit Sharing and Public Policy: Insights for the United States

Nations differ in their approach to profit sharing, with policies ranging from nonintervention to mandatory sharing. Mounting evidence that profit sharing has a positive impact on employment and productivity has spurred some American legislators and economists to propose additional tax incentives. While this option has been effective in increasing the number of plans, a more prudent response would be the creation of a national tripartite body to accelerate and enhance the quality of profit-sharing research.     

Employment Systems in Japan's Financial Industry: Globalization,Growing Divergence and Institutional Change

This article examines growing divergence and change in the employment systems of Japan's financial industry from the early 1990s until shortly after the so‐called Lehman Shock. This was a period which saw accelerated deregulation and globalization strongly impact the country's financial markets, leading to intensified competition over human resources. Foreign multinational corporations introduced into Japan's local product and labour markets new global ‘rules of the game’; in response, some native firms were forced to alter core aspects of a traditional employment model. The result was the emergence of diverging patterns of employment. The present study will demonstrate that the interaction of two key factors — national ownership and variation among core products and services offered — is shaping employment diversification, mediated by firms’ individual policies and practices. This research contributes to the debate on the effects of globalization on the divergence and change of employment systems.     

The relationship between works councils and firms’ further training provision in times of technological change

Participating in further training is strategically important for employees to ensure their employability. Particularly for employees in low-skilled jobs, works councils — firm-level organizations that represent employees — constitute an important employee advocacy instrument in European countries, such as France and Germany. With comprehensive co-determination rights, works councils can influence firms’ hiring policies, job design and career paths (e.g. promotions). Using German firm-level data, we empirically investigate the influence of works councils on firms’ training provision for employees in firms below and above the industry level of technology. The results show that works councils have a positive effect on the percentage of employees in general, and of employees in low-skilled jobs in particular, participating in training, but only for firms below the industry level of technology. These results show the importance of works councils in supporting training in such firms and enhancing the employment prospects of employees in low-skilled jobs. In contrast, firms above the industry level of technology invest in training with or without a works council, indicating that the training interests of employers and employees are aligned.     

Broadband adoption,jobs and wages in the US telecommunications industry

This article evaluates the impact of broadband adoption on wage and employment levels among the local exchange companies in the US telecommunications industry for the period between 1988 and 2001. Broadband is a general purpose technology and its adoption and diffusion is expected positively to impact wages because of the need for higher level skill in its deployment and usage, but can also lead to less human capital usage because of a scale effect. Using the extent of fiber adoption among the local exchange firms as a measure of broadband deployment, it was found that broadband diffusion within and between the firms over time has had a positive and significant impact on wage levels but its impact on employment has been negative. As broadband diffusion increases, with substantial scope available to do so given the low levels of deployment both among the local exchange firms studied and within the United States as a whole, the impact of such diffusion on enhancing wage levels in the sector can be profound.     

Innovations,Prices and Employment: A Theoretical Model and an Empirical Application for West German Manufacturing Firms

In this paper a theoretical model of the impact of product and process innovations on output, capacity utilization, employment and prices is developed. The model is estimated with a unique set of micro-data from West German manufacturing firms. The empirical results reveal that innovative firms are more successful. They show a higher utilization and more output and employment growth than non-innovative firms. Innovations also change market behaviour. In sectors with a large share of product innovators, firms more often change employment and less often change prices, i.e. product innovations reduce price competition.     

U.S. Multinational Activity Abroad and U.S. Jobs: Substitutes or Complements?

Critics of globalization claim that firms are being driven by the prospects of cheaper labor and lower labor standards to shift employment abroad. Yet the evidence, beyond anecdotes, is slim. This paper reports stylized facts on the activities of U.S. multinationals at home and abroad for the years 1977 to 1999. We focus on firms in manufacturing and services, two sectors that have received extensive media attention for supposedly exporting jobs. Using firm‐level data collected by the Bureau of Economic Analysis (BEA) in Washington, D.C., we report correlations between U.S. multinational employment at home and abroad. Preliminary evidence based on the operations of these multinationals suggests that the sign of the correlation depends on the crucial distinction between affiliates in high‐income and low‐income countries. For affiliates in high‐income countries there is a positive correlation between jobs at home and abroad, suggesting that foreign employment of U.S. multinationals is complementary to domestic employment. For firms that operate in developing countries, employment has been cut in the United States, and affiliate employment has increased. To account for firm size, substitution across firms and entry and exit, we aggregate our data to the industry level. This exercise reveals that the observed “complementarity” between U.S. and foreign jobs has been driven largely by a contraction across all manufacturing sectors. It also reveals that foreign employment in developing countries has substituted for U.S. employment in several highly visible industries, including computers, electronics, and transportation. The fact that there were U.S. jobs lost to foreign affiliates in key sectors, despite broad complementarity in hiring and firing decisions between U.S. parents and their affiliates, helps explain why economists view the impact of globalization on U.S. jobs as benign despite negative news coverage for declining industries.     

Contractual (In)Security, Labour Regulation and Competitive Performance in the Port Transport Industry: A Contextualized Comparison of Britain and Spain

Spanish ports have traditionally been derided for poor performance and acrimonious labour relations. This situation has been reversed in recent years through a programme of reform that has (a) created a more congenial organizational ecology in which firms co-operate as well as compete; (b) ensured the collective provision of vital production inputs such as training and social peace; and (c) co-ordinated investment in new port capacity and equipment. Spanish ports now match the performance of Britain's privatized and deregulated port transport industry, where co-operation is more notable by its absence, insecurity is rife and price competition intense. Through a contextualized comparison of labour regulation in the two countries, it is possible to demonstrate that an 'institutionally saturated' and 'politically bargained' system of production and employment is compatible with, if not a necessary condition for, competitive performance in the international port transport industry.     

Do Recessions Transform Work and Employment? Evidence from Ireland

Two contrasting views tend to dominate the literature on the impact of recessions on employment. One view is that recessions amount to a ‘critical conjuncture’ for work and employment systems, a time when firms try to transform radically existing employment models. The alternative perspective is that firms, constrained mostly by the forces of path dependency, seek to adjust to the immediate or short‐term pressures of the recession but otherwise maintain the established way of organizing the employment relationship. The purpose of this article is to contribute to this literature by reporting the findings of a major study of the effects of the recession on work and employment in firms based in Ireland. The main finding to emerge from the study is that firms mostly have made improvised adaptations in response to the crisis and have shied away from far‐reaching transformational strategies.     

An Empirical Analysis of the Relationship between Employee Ownership and Employment Stability in the US: 1999–2011

Do firms with employee ownership (EO) programs exhibit greater employment stability in the face of economic downturns? In particular, are firms with EO programs less likely to lay off workers during negative shocks? In this article, we examine the relationship between EO programs and employment stability in the United States using longitudinal Form 5500‐CompuStat matched data on the universe of publicly traded companies during 1999–2011. We examine how firms with EO programs weathered the recessions of 2001 and 2008 in terms of employment stability relative to firms without EO programs, and also whether such firms were less likely to lay off workers when faced with negative shocks more broadly. In our econometric analyses, we use a rich array of measures of EO at firms, including the presence of EO stock in pension plans, the presence of employee stock ownership plans (ESOPs), the value of EO stock per employee, the share of the firm owned by employees, the share of workers at the firm participating in EO and the share of workers at the firm participating in ESOPs. We also consider both economy‐wide negative shock measures (increases in the unemployment rate, declines in the employment‐to‐population ratio) and firm‐specific negative shock measures (declines in firm sales, declines in firm stock price). Our results indicate that EO firms exhibit greater employment stability in the face of economy‐wide and firm‐specific negative shocks.     

Strategic control systems and relative r&d investment in large multiproduct firms

This paper hypothesizes that tight financial controls associated with large diversified M-form firms lead to a short-term, low-risk orientation and thereby lower relative investment in R&D. Further, it is hypothesized that increasing levels of diversification require different control systems which have significant implications for investing in R&D. Results of the study of 124 major U.S. firms suggest that less diversified U-form firms invest more heavily in R&D than more diversified M-form firms after controlling for size and industry effects. Additionally, dominant business firms invested more in R&D than either related or unrelated business firms. Finally, the relationship between R&D intensity and market performance was negative for related and unrelated firms. The findings suggest that the market evaluates R&D investment more positively for firms that are organized to seek synergy than for those that are organized to pursue a hedging (or diversification) strategy.     

Growing pains: Pre‐entry experience and the challenge of transition to incumbency

We examine how entrepreneurial entry by diversifying and de novo firms in new industries leads to different levels of performance. We propose that these types of firms differ in dynamic capabilities, which help them overcome growth impediments and transition to incumbency in the industry. Growth impediments arise at larger size, older tenure levels in industry, and after technological discontinuities. Because of their prior experience, diversifying firms are better equipped to handle the challenges of impediments to growth. Meanwhile, de novo firms, ostensibly tailor‐made for the targeted industry, are more likely to stumble over these growth challenges, and eventually lag behind diversifying firms. We find support for our hypotheses using a near census of firms in the U.S. wireless telecommunications industry over the 1983–2004 period. Copyright © 2011 John Wiley & Sons, Ltd.     

Profit Sharing and Productivity: Further Evidence from the Chemicals Industry

Profit sharing potentially augments productivity by affecting motivational variables that promote group norms favoring effort. A factor augmentation model of production is developed to measure the impact of profit sharing on productivity using a test industry in U.S. manufacturing. The model is applied using alternative exogenous and endogenous specifications for the profit-sharing incentive variable. The results are consistent with those obtained in other recent studies and suggest that profit sharing results in improvements in productivity.     

Is performance driven by industry‐or firm‐specific factors? A new look at the evidence

In this study we revisit the question of whether firms' performance is driven primarily by industry or firm factors, extending past studies in two major ways. Firstly, in a departure from past research, we use value‐based measures of performance (economic profit or residual income and market‐to‐book value) instead of accounting ratios (such as return on assets). We also use a new data set and a different statistical approach for testing the significance of the independent effects. Secondly, we examine whether the findings of past research can be generalized across all firms in an industry or whether they apply to a particular class of firms within the same industry. We find that a significant proportion of the absolute estimates of the variance of firm factors is due to the presence of a few exceptional firms in any given industry. In other words, only for a few dominant value creators (leaders) and destroyers (losers) do firm‐specific assets seem to matter significantly more than industry factors. For most other firms, i.e., for those that are not notable leaders or losers in their industry, however, the industry effect turns out to be more important for performance than firm‐specific factors. Copyright © 2002 John Wiley & Sons, Ltd.