Profit Sharing, Bonus Payment, and Productivity: A Case Study of Chinese State-Owned Enterprises

This paper studies the impact of profit sharing and bonus payment on the performance of Chinese state industries in the 1980's. Employing the Kmenta approximation of a CES function and a nonlinear simultaneous system, it is found that over half of value-added growth could be explained by bonus incentives. Labor quality was another important factor affecting firm performance. Previous studies that do not consider labor quality may have produced biased results. The positive effect of bonus payment on production found by others is, however, confirmed.J. Comp. Econom.,June 1997,24(3), pp. 281–296. University of Portsmouth, Portsmouth PO4 8JF, United Kingdom.