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Equilibrium unemployment as a worker insurance device: wage setting in worker owned enterprises

Author

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  • Marina Albanese

    (University of Naples Federico II)

  • Cecilia Navarra

    (European Parliamentary Research Service)

  • Ermanno Tortia

    (University of Trento)

Abstract

Worker co-operatives have been shown as characterised by higher wage volatility while providing higher employment stability compared with investor-owned firms (IOFs). These stylised facts show co-operatives’ stronger tendency to preserve employment more than maximising members’ incomes or profits. Most empirical tests in different national contexts also provide evidence of lower wages in worker co-operatives than in IOFs. Such evidence is unexplained to date. To fill this explanatory gap, we resort to the Shapiro and Stiglitz (Am Econ Rev 74(3):433–444, 1984) model of unemployment as a worker discipline device. Given lower agency costs, more efficient monitoring and the absence of wage premiums compensating for the expected costs of contractual failures, we show that equilibrium wages in co-operatives can be lower than in IOFs, while employment, ceteris paribus, is always higher. We draw the following conclusions: (1) Equilibrium unemployment can be at least partly interpreted as a negative external effect of labour contract failures and bilateral opportunism. (2) Shapiro and Stiglitz’s (1984) result is a special case of a broader class of equilibria characterised by contractual imperfections in the agency relation. (3) Various ownership forms can have different impacts on equilibrium unemployment and wages.

Suggested Citation

  • Marina Albanese & Cecilia Navarra & Ermanno Tortia, 2019. "Equilibrium unemployment as a worker insurance device: wage setting in worker owned enterprises," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(3), pages 653-671, October.
  • Handle: RePEc:spr:epolit:v:36:y:2019:i:3:d:10.1007_s40888-018-00139-z
    DOI: 10.1007/s40888-018-00139-z
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    Cited by:

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    2. Maria Bastida & Alberto Vaquero García & Luisa Helena Pinto & Ana Olveira Blanco, 2022. "Motivational drivers to choose worker cooperatives as an entrepreneurial alternative: evidence from Spain," Small Business Economics, Springer, vol. 58(3), pages 1609-1626, March.
    3. Tortia, Ermanno C., 2021. "Employment protection regimes and dismissal of members in worker cooperatives," MPRA Paper 109214, University Library of Munich, Germany.
    4. Luigi BONATTI & Lorenza A. LORENZETTI, 2018. "Why Wages Tend To Be Lower In Worker‐Owned Firms Than In Investor‐Owned Firms," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 89(4), pages 563-580, December.
    5. Tortia, Ermanno Celeste, 2019. "Employment protection regimes in worker co-operatives: dismissal of worker members and distributive fairness," MPRA Paper 94536, University Library of Munich, Germany.
    6. Vladislav Valentinov & Constantine Iliopoulos, 2021. "Social capital in cooperatives: an evolutionary Luhmannian perspective," Journal of Evolutionary Economics, Springer, vol. 31(4), pages 1317-1331, September.
    7. Marina Albanese, 2020. "Social and Relational Variables in Worker Cooperatives: Implications for the Objective Function," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 9(1), pages 26-44.

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    More about this item

    Keywords

    Efficiency wage; Contractual failure; Opportunism; Monitoring; Abuse of authority; Worker-owned enterprises;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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