Profit Sharing, Teams, and Earnings

ABSTRACT This paper examines the impact of two team arrangements on the association between profit sharing and workers' earnings. In non‐interconnected teams individuals work on a single team, whereas in interconnected teams some employees work on several teams. Using data from the European Working Conditions Survey, we find that profit sharing is generally associated with an earnings premium. This association is strengthened when profit sharing interacts with interconnected teams, but not with non‐interconnected teams. These results suggest that a standard network of (non‐interconnected) teams needs cross‐team rotation to mitigate free‐riding and enhance the productivity and earnings effects of profit sharing.