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Profit Sharing, Risk Sharing, and Firm Size: Implications of Efficiency Wages

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  • Juin-Jen Chang

Abstract

By taking account of output fluctuations, this paper constructs a synthesis of profit-sharing and efficiency-wage models to highlight the role of the risk attitudes of the firm and its employees. We show, contrary to the traditional efficiency wage theory, that in a profit-sharing economy unemployment is no longer a necessary device to induce work effort and, consequently, the labor market equilibrium may be characterized by full employment. Such a result is more likely to be true when the economy is characterized by small-sized firms. In addition, we also provide a preliminary sketch of the situations in which the firm chooses a profit-sharing program or a fixed-wage one, and discuss how a firm determines its pay parameters and employment in response to output fluctuations. Copyright Springer 2006

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  • Juin-Jen Chang, 2006. "Profit Sharing, Risk Sharing, and Firm Size: Implications of Efficiency Wages," Small Business Economics, Springer, vol. 27(2), pages 261-273, October.
    • Handle: RePEc:kap:sbusec:v:27:y:2006:i:2:p:261-273
    DOI: 10.1007/s11187-006-0022-y
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    References listed on IDEAS

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    1. Martin Conyon & Richard B. Freeman, 2004. "Shared Modes of Compensation and Firm Performance U.K. Evidence," NBER Chapters, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980–2000, pages 109-146, National Bureau of Economic Research, Inc.
    2. Douglas L. Kruse, 1993. "Does Profit Sharing Affect Productivity?," NBER Working Papers 4542, National Bureau of Economic Research, Inc.
    3. Douglas L. Kruse, 1993. "Profit Sharing: Does It Make a Difference?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ps, November.
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    Cited by:

    1. Rahma Daly & Marc-Arthur Diaye & Jean-Max Koskievic, 2014. "Workers’ Risk Attitude and Financial Participation," Documents de recherche 14-03, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    2. Matthias Göcke, 2011. "Efficiency Wages and Negotiated Profit-Sharing under Uncertainty," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 57(2), pages 91-105.
    3. Leila Baghdadi & Rihab Bellakhal & Marc-Arthur Diaye, 2016. "Financial Participation: Does the Risk Transfer Story Hold in France?," British Journal of Industrial Relations, London School of Economics, vol. 54(1), pages 3-29, March.
    4. Juan Carlos Bárcena-Ruiz, 2016. "Employee share ownership in a unionised duopoly," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 15(3), pages 173-195, December.
    5. Leila Baghdadi & Rihab Bellakhal & Marc-Arthur Diaye, 2012. "Do French firms use financial participation to transfer more risk to their workers?," Documents de recherche 12-10, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.

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    More about this item

    Keywords

    Profit sharing; Risk sharing; Efficiency wages; Firm size; J33; J41; D82; J21;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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