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The Profit-Sharing Economy

As the income of the top 1% of US households soars, wages for the majority of American workers continue to stagnate, which is undermining long-term economic growth and prosperity. The introduction of more broad-based profit-sharing arrangements could be a key step toward ameliorating this trend.

BERKELEY – Over the last 35 years, real wages in the United States failed to keep pace with productivity gains; for the typical non-farm worker, the latter grew twice as fast as the former. Instead, an increasing share of the gains went to a tiny fraction of workers at the very top – typically high-level managers and CEOs – and to shareholders and other capital owners. In fact, while real wages fell by about 6% for the bottom 10% of the income distribution and grew by a paltry 5-6% for the median worker, they soared by more than 150% for the top 1%. How can this troubling trend be ameliorated?

One potential solution is broad-based profit-sharing programs. Together with job training and opportunities for workers to participate in problem-solving and decision-making, such programs have been shown to foster employee engagement and loyalty, reduce turnover, and boost productivity and profitability.

Profit sharing also benefits workers. Indeed, workers in companies with inclusive profit-sharing and employee-ownership programs typically receive significantly higher wages than workers in comparable companies without such arrangements. About half of Fortune’s list of the 100 best companies to work for have some kind of profit-sharing or stock-ownership program that extends beyond executives to include regular workers.

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