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Profit-sharing and innovation

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  • Aerts, Kris
  • Kraft, Kornelius
  • Lang, Julia

Abstract

We investigate the effect of profit-sharing on product and process innovation. Profit-sharing is a credible commitment of the companies to let the employees participate in any efficiency gain. Resistance against technical progress becomes less plausible. Moreover, employees are stimulated to share their specific information advantage on possibilities to optimize the production process and products with the management. We take account of possible selectivity effects and using survey data on German companies with and without profitsharing in a conditional difference-in-differences framework, we test our hypothesis by comparing measures of innovativeness. Based on matching (selectivity on observable covariates) in a static comparison firms with a share system show both more product and process innovations. In a dynamic setting, we find that the introduction of profit-sharing only spurs product innovation.

Suggested Citation

  • Aerts, Kris & Kraft, Kornelius & Lang, Julia, 2013. "Profit-sharing and innovation," ZEW Discussion Papers 13-114, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:13114
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    Cited by:

    1. Prince, Nicholas R. & Bruce Prince, J. & Kabst, Rüediger, 2020. "National culture and incentives: Are incentive practices always good?," Journal of World Business, Elsevier, vol. 55(3).
    2. Filippo Belloc, 2019. "Employer‐employee profit‐sharing and the incentives to innovate when the dismissal regulation matters," Metroeconomica, Wiley Blackwell, vol. 70(4), pages 641-654, November.

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    More about this item

    Keywords

    Profit Sharing; Innovation; Matching; Difference-in-Differences;
    All these keywords.

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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