Profit Sharing in the British Retail Trade Sector: The Relative Performance of the John Lewis Partnership

Abstract

This paper investigates the effects of profit-sharing on wages and employment by comparing the labour market behaviour of the John Lewis Partnership with that of four main competitors. The John Lewis Partnership employs around 30000 workers, who since 1970 have been paid between 13 and 24 per cent of workers' income in the form of a profit-related bonus. The empirical works suggests that profit-sharing in the John Lewis Partnership may be associated with greater levels of employment but does not significantly affect the level of remuneration. IN RECENT years, a growing proportion of employment contracts in Britain have linked pay with the fortunes of the firm, see for example Blanchflower and Oswald [1988]. This trend has been stimulated by the British government's introduction of tax relief for profit related pay (PRP), first in 1987 and extended in 1991. Weitzman [1984] argues that profit-sharing will stabilize employment, reduce unemployment and increase wage flexibility. The possibility of these externalities from profit-sharing on wider economic performance has been used to justify policy interventions. This paper reports empirical tests of wage determination and employment creation effects, based on a comparison of the labour market behaviour of the John Lewis Partnership with that of four important competitors in the British retail sector. We find some evidence that profit-sharing enhances employment