Much recent economic research has focused on compensation systems for labor and management which might be an effective alternative to the wage system. Most of the attention has centered on a system of profit sharing or employee ownership, wherein workers are compensated not only by wages but also by a share of the firm's profits. Of particular interest to both academicians and policy makers is the enormous potential importance of structures internal to the firm, especially those that provide for flexible pay, in determining macroeconomic outcomes. There are, however, many other possible sharing arrangements, and in principle they will also have many ramifications other than affecting inflation, unemployment and other macoreconomic variables. They could as well affect investment decisions and productivity. Past work has shown that sharing schemes take one of four different basic forms: 1) arrangements in which employees are remunerated by a share of the firm's profits but do not own stock nor exercise managerial control in the firm, 2) systems where employees own shares in the company, but have no role in the decisions of management, 3) firms which are managed entirely by labor, and 4) firms in which labor and management share in the decisions. Many specific arrangements are variations on these four basic configurations. Given the importance of profit sharing systems, there is a dearth of solid empirical work done on these issues. This project fills that gap by generating rigorous econometric evidence on the association between degrees of profit sharing and various economic indicators including productivity, investment rates, enterprise formation, and firm survival. Using a very rich and detailed set of panel data previously constructed by Professor Jones on profit sharing firms in Great Britain, France, and the United States, this project provides estimates of labor and wage equations, production functions, and productivity equations. These enable Professor Jones and other researchers to ascertain the structure and the mechanism by which labor compensation arrangements affect the macroeconomy.
