Profit-sharing and employment : claims and overclaims

Abstract

It has long been established that pay formulas containing an element of profit-sharing have non-inflationary employment promotion properties (Vanek, 1965), except in self-managed enterprises (e.g. Vanek, 1970). In recent literature economy-wide profit-sharing combined with workers' strict exclusion from employment decisions is being promoted as a scheme guaranteeing the achievement of a blissful state of non-inflationary excess demand for labour, absorbing all or part of possible deflationary shocks (Weitzman, 1983, 1984, 1985a, 1985b, 1986). Weitzman's proposal is reminiscent of the set-up in Catch-22, where a wheeler-dealer retrades and speculates with army supplies originally meant for the soldiers, who are supposed instead to benefit from their share in the profit of his operations; everybody has a share, nobody has a say, and the main beneficiary of the scheme is its proposer. The purpose of this paper is that of separating the beneficial effects of profit-sharing which are neither new nor controversial from the new propositions put forward by Weitzman which I shall argue to be overclaims.