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

Marina Albanese (), Cecilia Navarra () and Ermanno Tortia
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Cecilia Navarra: European Parliamentary Research Service

Economia Politica: Journal of Analytical and Institutional Economics, 2019, vol. 36, issue 3, No 1, 653-671

Abstract: 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.

Keywords: Efficiency wage; Contractual failure; Opportunism; Monitoring; Abuse of authority; Worker-owned enterprises (search for similar items in EconPapers)
JEL-codes: D21 D86 J31 J54 J64 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Equilibrium unemployment as a worker insurance device: Wage setting in worker owned enterprises (2017)
Working Paper: EQUILIBRIUM UNEMPLOYMENT AS A WORKER INSURANCE DEVICE. Wage setting in worker owned enterprises (2017)
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DOI: 10.1007/s40888-018-00139-z

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