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.