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Reciprocity and Profit Sharing: Is There an Inverse U-shaped Relationship?

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Abstract

Free-riding potentially limits the effectiveness of profit sharing in motivating workers. While reciprocity can mitigate this problem, it need not be uniformly productive. We show that the probability of receiving profit sharing takes an inverse U-shape as detailed individual survey measures of reciprocity increase. This is consistent with moderate but not extreme reciprocity stimulating productivity. We support one potential causation path by showing that extreme positive (negative) reciprocity is associated with extremely high (low) socializing and among workers receiving profit sharing, an intermediate degree of socializing is associated with the maximum amount of paid and unpaid overtime, a productivity proxy.

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Notes

  1. Kruse (1993) presents his own evidence and reviews earlier studies while Ugarkovic (2007) provides a more recent review. Blasi et al. (2010) present evidence that profit sharing improves worker effort, reduces turnover and increases loyalty to the firm.

  2. See Cornelissen et al. (2010) for a theoretical model.

  3. This statistic is taken from the 2007 Time Wasting Survey conducted by the HRM firm salary.com. In each of the 5 years of the survey, socializing at work has been either the first or second largest source of wasted time.

  4. See Brown and Heywood (2009) for additional evidence that individual performance pay reduces incentives to help on the job.

  5. We focus on male workers as previous research has shown that women are less responsive to profit sharing than men. Other work using the GSOEP suggests that women under profit sharing are often less able to respond to the pressure from co-workers that is generated by profit sharing (Heywood et al. 2005). Moreover, evidence from the U.S. indicates that women are less likely to act against shirking co-workers (Freeman et al. 2004). In line with this previous research, we find no link between reciprocity and profit sharing when we perform our analysis for female workers. While we can only speculate about this result, it may be that the intention to be reciprocal as elicited in the survey and the actual ability to reciprocate differ more for women than for men.

  6. Missing values of the schooling variable have been replaced by the mean value of years of schooling and a dummy variable added indicating the observations with missing values of schooling.

  7. The code is provided by the authors: http://fmwww.bc.edu/repec/bocode/u/utest.ado.

  8. Several studies for Germany suggest that overtime is indeed associated with greater effort and productivity. Schank (2003) finds that establishments using overtime work are more efficient. Bauer and Zimmermann (1999) show that skilled workers do more overtime and Pannenberg (2005) and Anger (2008) demonstrate that workers use overtime to signal ability and motivation.

  9. As discussed in our theoretical development, the sorting into and out of profit sharing jobs reflects both stochastic elements and factors other than reciprocity. While our hypothesis suggests the profit sharing subsample will be disproportionately those of intermediate reciprocity, some variation will remain. Indeed, in both subsamples, there is sufficient variation in the socializing variables (which reflect, in part, reciprocity) so that separate regressions can be performed to examine the link between socializing and productivity. For example, in the profit sharing sample 3 % of workers report not having good relations with co-workers, 20 % report partially good relations and 77 % report completely good relations. Also within the profit sharing sample, 5 % of workers report no friends, 73 % report 1–5 friends, 19 % report 6–10 friends and 3 % report more than 10 friends. While there is sufficient variation to make sensible estimates, it is worth noting that these distributions are more concentrated in the intermediate categories than are those in the sample without profit sharing (available upon request) and that, if anything, the dampening of the variance makes it harder to find the statistical relationships we report.

  10. Heywood and Jirjahn (2002, 2009) confirm that team production is positively associated with profit sharing.

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Authors and Affiliations

  1. Department of Economics, University College London, London, UK

    Thomas Cornelissen

  2. Department of Economics, University of Wisconsin-Milwaukee, P.O. Box 413, Milwaukee, WI, 53201, USA

    John S. Heywood

  3. Department of Economics, University of Trier, Trier, Germany

    Uwe Jirjahn

Authors
  1. Thomas Cornelissen
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  2. John S. Heywood
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  3. Uwe Jirjahn
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Corresponding author

Correspondence to John S. Heywood.

Appendix

Appendix

Table 6 Variable definitions and sample means
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Table 7 Correlation coefficients of reciprocity measures and the other explanatory variables
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Cornelissen, T., Heywood, J.S. & Jirjahn, U. Reciprocity and Profit Sharing: Is There an Inverse U-shaped Relationship?. J Labor Res 35, 205–225 (2014). https://doi.org/10.1007/s12122-014-9179-3

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