Profit Sharing and the Firm‐Size Wage Premium

21 Pages Posted: 8 May 2017

See all articles by Jaakko Pehkonen

Jaakko Pehkonen

University of Jyväskylä - School of Business and Economics

Sampo Pehkonen

Government of the Republic of Finland - Statistics Finland

Matthias Strifler

University of Jyväskylä

Mika Maliranta

ETLA, The Research Institute of the Finnish Economy

Date Written: June 2017

Abstract

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.

Suggested Citation

Pehkonen, Jaakko and Pehkonen, Sampo and Strifler, Matthias and Maliranta, Mika, Profit Sharing and the Firm‐Size Wage Premium (June 2017). LABOUR, Vol. 31, Issue 2, pp. 153-173, 2017, Available at SSRN: https://ssrn.com/abstract=2964029 or http://dx.doi.org/10.1111/labr.12092

Jaakko Pehkonen (Contact Author)

University of Jyväskylä - School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
FIN 40351, FIN-40014
Finland

Sampo Pehkonen

Government of the Republic of Finland - Statistics Finland

Finland

Matthias Strifler

University of Jyväskylä ( email )

Seminaarinkatu 30
Jyväskylä, 40100
Finland

Mika Maliranta

ETLA, The Research Institute of the Finnish Economy ( email )

Lonnrotink. 4 B
FIN-00120 Helsinki, 00120
Finland
+358 9 609900 (Phone)
+358 9 601753 (Fax)

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