DOES PROFIT-SHARING WORK IN A CENTRALLY-PLANNED ECONOMY - EVIDENCE FROM THE CHINESE STATE INDUSTRIES

Many studies indicate that profit-sharing is an effective incentive to boost productivity of firms in the western economies such as USA, UK and Germany. Whether a similar incentive scheme can work in a centrall y-planned economy like China has not been well researched. China intro duced a profit-sharing and bonus-payment scheme in the state-owned ent erprises (SOEs) from 1979 in an attempt to reform the state industries . Using a modified CES production function in a non-linear simultaneou s system, this study aims to estimate the impact of such a scheme on e nterprise performance. It reveals that both labour quality and bonus i ncentive played an important role in raising SOEs' productivity.