PROFIT-SHARING AND EMPLOYEE OWNERSHIP - POLICY IMPLICATIONS

Various arguments extol public encouragement of profit sharing and Emp loyee Stock Ownership Plans (ESOPs). Generally advocates of public int ervention cite externalities (market failure), provision of merit good s, or social transformation as bases for their arguments. To the exten t that profit sharing and ESOPs increase productivity or reduce employ er costs, no case exists for public intervention, since such advantage s are internalized. Although Congress views retirement saving as a mer it good, deferred profit sharing and ESOPs are no more deserving of pu blic subsidy on that basis than are other forms of saving, such as pen sions. Finally, the notion that ESOPs promote a social transformation by redistributing equity is untenable. One can make a case for governm ent efforts to spread data and information about these plans. The pote ntial macro stabilizing effects of profit sharing-but not ESOPs-provid e a rationale for a tax subsidy to the former.