Tuesday, May 27, 2008

Sharing the Wealth

The latest government plan to juice purchasing power involves intéressement and participation. Both are forms of profit sharing, but as far as I know there are no precise American equivalents, so the terms are perhaps best left untranslated. In France, participation is mandatory in firms with more than 50 employees. A share of any profits earned by the firms is distributed to employees, but distributions had been "blocked" for five years, meaning that they could not be converted to cash until a five-year waiting period had elapsed. Sarkozy is eliminating this waiting period, so accrued bonuses can be spent immediately.

Intéressement is a voluntary form of profit-sharing established by agreement between a firm and its employees. No waiting period is associated with it. Sarkozy is offering small firms that have not created such plans a tax credit to encourage them to do so now.

A firm can implement both types of profit-sharing if it wishes.


Anonymous said...

Interestingly, there is no clear economic rationale for the intéressement. I don't see the need for government intervention in this.

If it is in firms' interests to provide incentives, then they can already tie wages and profits.

If firms are not free to set wages and write flexible contracts, and if they would like to give incentives to their employees, then fine, let's increase the intéressement. But why not give firms and workers more leeway and decentralize wage bargaining at the firm level?

Sarkozy talked about le pouvoir d'achat and said that the intéressement could increase real wages. I don't see why we should give tax credits to basically increase wages: will the cost to taxpayers outweigh the benefits?

Unknown said...

The government can't order firms to raise wages, but it can offer incentives to do so in the form of tax credits. Higher wages can stimulate aggregate demand and thus the economy; that is in the general interest as long as the stimulus doesn't lead to excessive inflation, which is one reason to keep wage bargaining above the firm level, where it can be more easily coordinated. If workers at one firm see workers at another firm winning raises, there is a natural desire to want to "leapfrog" the comrades next door. Centralized wage bargaining tends to reduce this sort of behavior, and it is possibly one reason why German and Scandinavian unions have had some success in trading wage restraint for growth. Profit-sharing has the property of tying wage supplements to performance, which can be useful to firms but may be procylical in its macroeconomic effect, reducing demand when the economy turns down, which is undesirable for stability.

Cimon said...

The waiting period is reduced in some cases : if you purchase a house, if you have kids or get married...

MYOS said...

A friend of mine who works in Human Resources is rubbing her hands: according to her, the way the project is worded, they'll be able to offer lower monthly wages with promises of a one-shot bonus based on collective performance. Hence, lower expenses for her firm in the long run. She dismissed any notion it'd increase "pouvoir d'achat" for salaried wage-earners although to me the idea seemed promising and a good compromise.
She also said the intéressement and participation ideas came from De Gaulle and had been implemented in 67.

Amine said...


Your reply is very interesting.

Well, yes, governement intervention can take many forms, including tax credits.

It seems like we're going to the same old debate about the effect of stimulating consumption through tax cuts. The likely effects of tax cuts on consumption are small, all the more that firms' wage policies react to that, and that our economies are open to international trade. One extra euro is likely to be spent on foreign goods, and the Keynesian multiplier is very low in an open economy.

I hadn't thought about centralized bargaining and inflation control. That's a good point. But again, in an open economy, it's hard to argue that workers can really ask for wage increases. They are competing with foreign workers basically.

Anyway, I think this is a hard question and thanks for the debate.