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Employee Stock Ownership vs. Profit Sharing

  • Rick Harbaugh

    (Claremont McKenna College)

The idea that profit sharing increases employment has been widely tested, but the theoretical basis for the claim is weak and the empirical results are ambiguous. This paper shows that employee stock ownership based on individually-held stakes avoids the problems of traditional profit sharing. Employee stock ownership shifts employment to the efficient level by either raising employment from an initial state of underemployment or decreasing it from an initial state of overemployment. Since the effect on employment is not unidirectional, empirical tests need to differentiate between traditional profit sharing and employee stock ownership and to condition on the initial state of employment.

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Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2000-28.

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Handle: RePEc:clm:clmeco:2000-28
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  1. Ognedal, Tone, 1992. "The effects of union owned shares on the outcome of wage bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 18(2), pages 185-200, July.
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  9. Svejnar, J., 1984. "Bargaining power, fear of disagreement and wage settlements: theory and evidence from U.S. industry," CORE Discussion Papers 1984037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Cahuc, Pierre & Dormont, Brigitte, 1997. "Profit-sharing: Does it increase productivity and employment? A theoretical model and empirical evidence on French micro data," Labour Economics, Elsevier, vol. 4(3), pages 293-319, September.
  11. Kruse, Douglas L, 1992. "Profit Sharing and Productivity: Microeconomic Evidence from the United States," Economic Journal, Royal Economic Society, vol. 102(410), pages 24-36, January.
  12. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  13. Alexander, C O & Ledermann, W, 1996. "Are Nash Bargaining Wage Agreements Unique? An Investigation into Bargaining Sets for Firm-Union Negotiations," Oxford Economic Papers, Oxford University Press, vol. 48(2), pages 242-53, April.
  14. Weitzman, Martin L, 1987. "Steady State Unemployment under Profit Sharing," Economic Journal, Royal Economic Society, vol. 97(385), pages 86-105, March.
  15. Bell, Linda A & Neumark, David, 1993. "Lump-Sum Payments and Profit-Sharing Plans in the Union Sector of the United States Economy," Economic Journal, Royal Economic Society, vol. 103(418), pages 602-19, May.
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