Working Paper: NBER ID: w31804
Authors: Elio Nimer; David Sraer; David Thesmar
Abstract: Since 1967, all French firms with more than 100 employees are 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 nor 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; labor share; redistribution; France
JEL Codes: G3; H20; J01; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mandated profit-sharing (D33) | labor share (D33) |
| mandated profit-sharing (D33) | profit share (D33) |
| mandated profit-sharing (D33) | investment (G31) |
| mandated profit-sharing (D33) | productivity (O49) |
| mandated profit-sharing (D33) | total compensation for low-skill workers (J31) |
| mandated profit-sharing (D33) | compensation for high-skill workers (J31) |