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Employee Profit-sharing and Labor Extraction in a Classical Model of Distribution and Growth

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  • Jaylson Jair da Silveira
  • Gilberto Tadeu Lima

Abstract

This article sets out a classical model of economic growth in which the distribution of income features the possibility of profit-sharing with workers, as firms choose periodically between two labor-extraction compensation strategies. Workers are homogeneous with regard to labor power, and firms choose to compensate them with either only a conventional wage or a share of profits on top of this conventional wage. Empirical evidence shows that labor productivity (i.e. labor extraction) in profit-sharing firms is higher than labor productivity in non-sharing firms. The frequency distribution of labor-extraction employee compensation strategies and labor productivity across firms is time-variant, being driven by satisficing imitation dynamics from which we derive two significant results. First, heterogeneity in labor-extraction compensation strategies across firms, and hence earnings inequality across workers can be a stable long-run equilibrium outcome. Second, although convergence to a long-run equilibrium may occur with either a falling or increasing proportion of profit-sharing firms, the share of net profits in income and the rates of net profit, capital accumulation and economic growth nevertheless all converge to the highest possible long-run equilibrium values.

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  • Jaylson Jair da Silveira & Gilberto Tadeu Lima, 2017. "Employee Profit-sharing and Labor Extraction in a Classical Model of Distribution and Growth," Review of Political Economy, Taylor & Francis Journals, vol. 29(4), pages 613-635, October.
    • Handle: RePEc:taf:revpoe:v:29:y:2017:i:4:p:613-635
    DOI: 10.1080/09538259.2018.1429149
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    Cited by:

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    2. Tzu-Chun Sheng & Alvin Chang & Shu-Hui Lan & Shih-Cheng Li, 2020. "Analysis of the Dividend Policy Decision-Making Mechanism of Chinese and Taiwanese Lithium Battery Industries," Mathematics, MDPI, vol. 8(10), pages 1-16, October.

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    More about this item

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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