Do worker cooperatives pay a price for equality?

One of the benefits of worker-owned businesses is that they tend to pay people more equally; the lowest wages and the highest wages in a typical worker-owned business are nearer to each other than the lowest and highest wages in a typical capitalist firm. Income and wealth inequality are poisonous, tearing apart the very fabric of our democratic societies, and globally, these problems are only getting worse, so a more egalitarian wage structure is one of the most important reasons to support the development and expansion of the cooperative economy.

But do worker cooperatives pay any price (in productivity or longevity) for having a more equal wage structure? Recent research by Gabriel Burdín on worker-managed firms in Uruguay suggests that they might.

Specifically, Burdín wanted to test the theory that if worker-managed firms pay lower-income workers more by paying higher-income workers less, then higher-income workers should be more likely to leave worker-managed firms, to “vote with their feet” and seek higher wages in capitalist firms, leading to a “brain drain” of higher-skilled employees in worker-managed firms.

Crunching a fairly impressive dataset from Uruguayan worker-managed firms, Burdín shows that this appears to be the case. There is a small wage incentive to work at a worker-managed firm in Uruguay, but this wage incentive is at the low end of the scale. Higher-waged employees typically make less. And he found that those in the top 20% of the wage-scale in worker-managed firms are 4.5 times more likely to leave the firm as lower-waged workers, while in comparison, higher-waged workers in capitalist firms are actually less likely to leave their jobs than lower-waged workers.

Burdín doesn’t offer any solid solutions to this problem, but he does hint at one. He suggests that a strong cooperative ideology in a worker-owned firm may help that firm retain higher-income workers and fight “brain drain” effects. He had no way to directly measure ideology in his data, but he notes, when he looked at founders of worker-managed firms, they are less likely to leave than workers hired later on, and theorizes that founders tend to be highly ideologically committed to the cooperative, and therefore, less likely to “vote with their feet” and find better wages elsewhere.

Time and again in the research on worker-ownership, we see how important ideological commitment and focus is to the success of worker cooperatives. If founders of worker-owned firms can build ongoing cooperative education into the structure of their businesses from the very beginning, they will be providing their fellow worker-owners with the best chance of continued success in the future.

Burdín, Gabriel. (2016). Equality under threat by the talented: Evidence from worker‐managed firms. The Economic Journal, 126: 1372-1403.

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2 Responses to Do worker cooperatives pay a price for equality?

  1. Josh says:

    Does the increased propensity of higher-income members to leave the co-op have any repercussions on co-op longevity or success, though? Because if not, I’m not sure I see this as a problem, just a reason to focus more on education, as you say.

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