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CEP discussion paper
When Workers Share in Profits: Effort and Responses to Shirking
Richard Freeman
July 2008
Paper No' CEPDP0882:
Full Paper (pdf)

JEL Classification: J41; J24; J33

Tags: profit sharing; efficiency wages

This paper summarizes new evidence from the “Shared Capitalism” Project on the extent to which workers’ earnings depend on the performance of their firm or work group in the US and advanced European countries and on the impact of sharing arrangements on economic behavior. The evidence shows that: 1) a large and growing proportion of workers are covered by shared capitalism through worker profit-sharing, bonuses, or worker ownership of shares; 2) outcomes for workers and firms are higher under shared capitalism than under other work and pay arrangements; and 3) that worker co-monitoring helps overcome the free rider problem that arises when part of workers pay depends on the productivity and effort of all workers.