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When Workers Share in Profits: Effort and Responses to Shirking

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Listed author(s):
  • Richard B. Freeman

    ()

    (Harvard University, NBER Centre for Economic Performance and LSE)

Abstract

This paper summarizes new evidence from the National Bureau of Economic Research “Shared Capitalism” Project on the extent to which workers’ earnings depend on the performance of their firm or work group in the US and advanced Europe and on the impact of sharing arrangements on economic behavior. The evidence shows that: 1) a large and growing proportion of workers are covered by 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 work and pay arrangements; and 3) that worker co-monitoring helps overcome the free rider problem that arises when part of pay depends on the productivity and effort of all workers.

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Article provided by SIPI Spa in its journal Rivista di Politica Economica.

Volume (Year): 97 (2007)
Issue (Month): 6 (November-December)
Pages: 9-36

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Handle: RePEc:rpo:ripoec:v:97:y:2007:i:6:p:9-36
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Find related papers by JEL classification:
  • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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  1. 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.
  2. Freeman, Richard B. & Kruse, Douglas & Blasi, Joseph, 2008. "The same yet different: Worker reports on labour practices and outcomes in a single firm across countries," Labour Economics, Elsevier, vol. 15(4), pages 749-770, August.
  3. 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 1083-1105, December.
  4. 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.
  5. 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.
  6. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-554, May.
  7. Joseph Blasi & Michael Conte & Douglas Kruse, 1996. "Employee Stock Ownership and Corporate Performance among Public Companies," ILR Review, Cornell University, ILR School, vol. 50(1), pages 60-79, October.
  8. 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.
  9. Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
  10. 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.
  11. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
  12. Leibowitz, Arleen & Tollison, Robert, 1980. "Free Riding, Shirking, and Team Production in Legal Partnerships," Economic Inquiry, Western Economic Association International, vol. 18(3), pages 380-394, July.
  13. 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 743-772, October.
  14. Douglas L. Kruse, 1993. "Profit Sharing: Does It Make a Difference?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ps.
  15. Gaynor, Martin & Pauly, Mark V, 1990. "Compensation and Productive Efficiency of Partnerships: Evidence from Medical Group Practice," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 544-573, June.
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Cited by:

  1. David Hummels & Jakob Munch & Chong Xiang, 2016. "No Pain, No Gain: The Effects of Exports on Effort, Injury, and Illness," NBER Working Papers 22365, National Bureau of Economic Research, Inc.

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