When Workers Share in Profits: Effort and Responses to Shirking

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When Workers Share in Profits: Effort and Responses to Shirking

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Richard Freeman

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Richard B. Freeman

Abstract

This paper summarizes new evidence from the "Shared Capitalism" Project on the extent towhich workers' earnings depend on the performance of their firm or work group in the USand advanced European countries and on the impact of sharing arrangements on economicbehavior. The evidence shows that: 1) a large and growing proportion of workers are coveredby shared capitalism through worker profit-sharing, bonuses, or worker ownership of shares;2) outcomes for workers and firms are higher under shared capitalism than under other workand pay arrangements; and 3) that worker co-monitoring helps overcome the free riderproblem that arises when part of workers pay depends on the productivity and effort of allworkers.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0882.

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Date of creation: Jul 2008
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Handle: RePEc:cep:cepdps:dp0882

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Article
- Richard B. Freeman, 2007. "When Workers Share in Profits: Effort and Responses to Shirking," Rivista di Politica Economica, SIPI Spa, vol. 97(6), pages 9-36, November-. [Downloadable!]
- Richard B. Freeman, 2008. "When Workers Share in Profits: Effort and Responses to Shirking," 'Angelo Costa' Lectures Serie, SIPI Spa, issue Lect. IX. [Downloadable!]

Find related papers by JEL classification:
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-08-31 (All new papers)
NEP-BEC-2008-08-31 (Business Economics)
NEP-EEC-2008-08-31 (European Economics)
NEP-LAB-2008-08-31 (Labour Economics)
NEP-LTV-2008-08-31 (Unemployment, Inequality & Poverty)

References listed on IDEAS
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Leibowitz, Arleen & Tollison, Robert, 1980. "Free Riding, Shirking, and Team Production in Legal Partnerships," Economic Inquiry, Oxford University Press, vol. 18(3), pages 380-94, July.
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Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
Jones, Derek C & Kato, Takao, 1995. "The Productivity Effects of Employee Stock-Ownership Plans and Bonuses: Evidence from Japanese Panel Data," American Economic Review, American Economic Association, vol. 85(3), pages 391-414, June. [Downloadable!] (restricted)
Knez, Marc & Simester, Duncan, 2001. "Firm-Wide Incentives and Mutual Monitoring at Continental Airlines," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 743-72, October. [Downloadable!] (restricted)
Ernst Fehr & Simon Gachter, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September. [Downloadable!] (restricted)
Other versions:
- Ernst Fehr & Simon Gaechter, . "Cooperation and Punishment in Public Goods Experiments," IEW - Working Papers iewwp010, Institute for Empirical Research in Economics - IEW. [Downloadable!]
- Ernst Fehr & Simon Gaechter, 1999. "Cooperation and Punishment in Public Goods Experiments," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Hirshlifer, David & Rassmusen, Eric, 1989. "Cooperation in a repeated prisoners' dilemma with ostracism," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 87-106, August. [Downloadable!] (restricted)
Joseph Blasi & Michael Conte & Douglas Kruse, 1996. "Employee stock ownership and corporate performance among public companies," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 50(1), pages 60-79, October.
Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August. [Downloadable!] (restricted)
Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May. [Downloadable!] (restricted)
Craig, Ben & Pencavel, John, 1992. "The Behavior of Worker Cooperatives: The Plywood Companies of the Pacific Northwest," American Economic Review, American Economic Association, vol. 82(5), pages 1083-105, December. [Downloadable!] (restricted)
Carpenter, Jeffrey P., 2004. "Punishing Free-Riders: How Group Size Affects Mutual Monitoring and the Provision of Public Goods," IZA Discussion Papers 1337, Institute for the Study of Labor (IZA). [Downloadable!]
Other versions:
- Jeffrey Carpenter, 2002. "Punishing Free Riders: how group size affects mutual monitoring and the provision of public goods," Middlebury College Working Paper Series 0206, Middlebury College, Department of Economics. [Downloadable!]
- Carpenter, Jeffrey P., 2007. "Punishing free-riders: How group size affects mutual monitoring and the provision of public goods," Games and Economic Behavior, Elsevier, vol. 60(1), pages 31-51, July. [Downloadable!] (restricted)

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