Profit-Sharing and Innovation

30 Pages Posted: 16 Jan 2014

See all articles by Kris Aerts

Kris Aerts

KU Leuven Research & Development (LRD)

Kornelius Kraft

University of Dortmund - Department of Economics; IZA Institute of Labor Economics

Julia Lang

Technical University of Dortmund

Date Written: December 15, 2013

Abstract

We investigate the effect of profit-sharing on product and process innovation. Profit-sharing is a credible commitment of the companies to let the employees participate in any efficiency gain. Resistance against technical progress becomes less plausible. Moreover, employees are stimulated to share their specific information advantage on possibilities to optimize the production process and products with the management. We take account of possible selectivity effects and using survey data on German companies with and without profitsharing in a conditional difference-in-differences framework, we test our hypothesis by comparing measures of innovativeness. Based on matching (selectivity on observable covariates) in a static comparison firms with a share system show both more product and process innovations. In a dynamic setting, we find that the introduction of profit-sharing only spurs product innovation.

Keywords: Profit Sharing, Innovation, Matching, Difference-in-Differences

JEL Classification: L23, L25, O31, O32

Suggested Citation

Aerts, Kris and Kraft, Kornelius and Lang, Julia, Profit-Sharing and Innovation (December 15, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-114, Available at SSRN: https://ssrn.com/abstract=2379462 or http://dx.doi.org/10.2139/ssrn.2379462

Kris Aerts

KU Leuven Research & Development (LRD) ( email )

Waaistraat 6 P.B. 5105
Leuven, 3000
Belgium

Kornelius Kraft (Contact Author)

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755-3152 (Phone)
+49 231 755-3155 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Julia Lang

Technical University of Dortmund ( email )

Emil-Figge-Stra├če 50
Dortmund, 44227
Germany

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