This study tests an important implication of Weitzman's profit-sharing theory—the prediction that profit-sharing firms will have more stable employment than fixed-wage firms—using panel data on 2,976 publicly traded companies for the years 1971–85. Profit-sharing manufacturing firms are found to have had smaller employment decreases than other manufacturing firms during business downturns: when the unemployment rate increased by one point, manufacturing firms in which all employees participated in a profit-sharing pension plan had a 2.0% decrease in employment, compared to a 3.1% decrease for nonprofit-sharing manufacturing firms. No significant differences in employment stability were found, however, between profit-sharing and non-profit-sharing firms in the non-manufacturing sector.
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