Antti Kauhanen (The Research Institute of the Finnish Economy and Helsinki School of Economics), Hannu Piekkola

Profit Sharing: Earnings and Productivity Effects in Finland

Using Finnish linked employer-employee data from 1996-2000, it is shown that profit sharing is used mainly in firms where it is difficult to measure the output of individual employees. These firms are typically large and face high monitoring costs, and are likely to be characterised by a high R&D intensity and extensive use of skilled workers. The productivity effects are around 7% when the composition of the workforce is controlled for. Despite an earnings effect of similar magnitude, on average 7%, profit sharing also improves the profitability of the firms. Profit sharing also seems to increase the P/E ratios.

Keywords: Profit sharing, productivity, linked employer-employee data

JEL Codes: J32, J33, J53, C23

Session: 4e   Room 2004   Category: Wages 2

Paper