UNIVERSITE MICHEL DE MONTAIGNE BORDEAUX 3 – Lettres, Sciences humaines, Arts et Langues.

Version / Traduction LEA 2ème année
Sharing out the profits Efforts to improve the working of the labour market through the reform of trade unions and the tax and social security systems will not work overnight. But there may be a short-cut to making wages more flexible: profit-sharing. Earlier this year, the government published a green paper on profit-related pay, which proposed tax incentives to encourage workers and firms to introduce profit-sharing. The plan draws on the thinking of an American economist, Professor Martin Weitzman. Profit-sharing has two advantages over a fixed-wage system. If everybody has a stake in the success of the firm, it will improve industrial relations and give the workers an incentive to work harder. More important, wages will become more responsive to business conditions: in a profitable year, pay will rise; in a bad year it will fall. This should result in higher employment. During a recession, firms will be cushioned by the drop in wages and therefore sack fewer workers. And in better times, firms have more incentive to hire new workers. To understand why, assume that a firm currently pays its workers a wage of £100 a week. The company will only take on an extra worker if his additional output is worth more than £100. Suppose the firm then shifts to a profit-sharing scheme: the worker is now paid a basic wage of £80 plus a share of the profit -- £20 in the first year. The firm’s average labour cost is the same as before -- £100, but the marginal cost of a new recruit has been trimmed to £80, and therefore he will get the job so long as he generates at least £80 in revenue. Critics argue that this is simply a backdoor way of cutting wages, as the expansion of employment will dilute the profit-share of existing workers. Profit-sharing therefore gives workers a big incentive to restrict new recruitment. One way of easing the