Working Paper: CEPR ID: DP18605
Authors: Elio Niemi; David Sraer; David Thesmar
Abstract: Since 1967, all French firms with more than 100 employees have been required to share a fraction of their excess profits with their employees. Through this scheme, firms with excess profits distribute on average 10.5% of their pre-tax income to workers. In 1990, the eligibility threshold was reduced to 50 employees. We exploit this regulatory change to identify the effects of mandated profit-sharing on firms and their employees. The cost of mandated profit-sharing for firms is evident in the significant bunching at the 100-employee threshold observed prior to the reform, which completely disappears post-reform. Using a difference-in-difference strategy, we find that, at the firm level, mandated profit-sharing (a) increases labor share by 1.8 percentage points, (b) reduces the profit share by 1.4 percentage points, and (c) does not affect investment or productivity. At the employee level, mandated profit-sharing increases low-skill workers’ total compensation and leaves high-skill workers' total compensation unchanged. Overall, mandated profit-sharing redistributes excess profits to lower-skill workers in the firm, without generating significant distortions or productivity effects.
Keywords: profit-sharing; investment; wage-setting; productivity
JEL Codes: J00; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mandated profit-sharing (D33) | increase in labor share (J39) |
| mandated profit-sharing (D33) | decrease in profit share (D33) |
| mandated profit-sharing (D33) | no impact on investment (F69) |
| mandated profit-sharing (D33) | no impact on productivity (F69) |
| mandated profit-sharing (D33) | increase in total compensation for low-skill workers (J31) |
| mandated profit-sharing (D33) | no change in compensation for high-skill workers (J39) |