Profit sharing pumps cash into local economies
Graphic by Courtney Williams
Delta’s historic profit sharing payout Friday of $1.5 billion – the largest payout in the history of corporate profit sharing programs – will have an even bigger impact on local communities than the numbers suggest because of what economists call “the multiplier effect.”
For example, in metro Atlanta where Delta will pay its 32,000 employees $540 million, the economic impact will actually be more than double: an estimated $1.3 billion, according to UGA economist Jeff Humphreys.
The average payout per U.S. employee is about $14,500, or around 21 percent of employees’ eligible 2015 earnings.
“In the frequently cited ‘multiplier effect,’ the increased income earned by people selling goods and services purchased with money from Delta profit sharing is, in turn, spent partly on local products,” said Jeff Rosensweig, professor of Goizueta Business School at Emory University and director of the Global Perspective Program. “Then, the people who sell those products will start a third round of spending, and so on.”
Rosensweig, who specializes in global economics, went on to explain that profit sharing guarantees that a sizable share of profits is injected directly into the communities where Delta employees live and work.
“Profit sharing by corporations is one of the best ways to help an economy,” Rosensweig said. “Although some of these increments to income will be saved or spent outside of the local economy, much of it will be plowed into increased purchases of goods and services locally.”
Other markets that saw top payouts include New York City with $143 million and Detroit with $130 million.
Delta’s profit sharing benefits local governments as well, with a percentage of that spending going back to the government in the form of sales tax – a benefit that wouldn’t occur if the company opted to only invest its money in new aircraft or shareholders, as some of the airline’s competitors have done. Of note, American Airlines does not have a profit sharing program.
The historic profit sharing payout is a result of the airline’s record-breaking 2015 performance, with an annual adjusted pre-tax profit of $5.9 billion.