DOES PROFIT-SHARING INCREASE FIRMS PROFITS

Although there is ample evidence that profit-sharing plans increase pr oductivity little is known about how such plans affect profitability. Using a data set of 198 U.S. firms, I examined the relationship betwee n profit sharing and profits. Results suggest that profit sharing has a significant effect on profits in a single-equation setting. But the significance disappeared in a simultaneous-equations framework because of interdependence between the two variables. In an auxiliary regress ion, profit sharing is found to increase labor costs. This result part ially explains why profit sharing has art insignificant effect on prof itability.