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Profit Sharing and the Firm‐Size Wage Premium
Author(s) -
Pehkonen Jaakko,
Pehkonen Sampo,
Strifler Matthias,
Maliranta Mika
Publication year - 2017
Publication title -
labour
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.403
H-Index - 34
eISSN - 1467-9914
pISSN - 1121-7081
DOI - 10.1111/labr.12092
Subject(s) - profit sharing , wage , monopsony , economics , profit (economics) , labour economics , efficiency wage , microeconomics , panel data , productivity , econometrics , finance , macroeconomics
This study analyzes the relationships among wages, firm size, and profit sharing schemes. We develop a simple theoretical model and explore the relationship empirically using high‐quality panel data. The theoretical model shows that the firm‐size wage premium decreases in the presence of profit sharing. The empirical results based on rich matched employee‐employer data for private sector wage earners in Finland show that the firm‐size wage premium is modest, and it becomes negligible when we account for profit sharing and covariates describing assortative matching and monopsony behavior. The analysis suggests that profit sharing schemes embody effects of firm‐specific unobservables that raise productivity, support rent sharing, and boost wages.