Profit Sharing and Productivity: Microeconomic Evidence from the United States

Profit sharing has often been suggested as a potential solution to principal/agent problems in the workplace. The relationship between productivity and profit sharing is examined using a panel dataset drawn from 2, 976 publicly-held companies over the 1971-85 period. Alternatively using firm-intercept and first-difference specifications, the regression results indicate that the adoption of profit sharing is associated with a 2.5-4.2 percent increase in productivity. In addition, the size of the effect increases with the proportion of employees participating in profit sharing. These results hold under a variety of specifications and do not appear to be explained by accompanying changes in management or personnel policies.