Why Wages Tend to Be Lower in Worker‐Owned Firms than in Investor‐Owned Firms

17 Pages Posted: 14 Nov 2018

See all articles by Luigi Bonatti

Luigi Bonatti

University of Bergamo; University of Trento - Department of Economics and Management

Lorenza Lorenzetti

University of Trento

Date Written: December 2018

Abstract

Consistently with the empirical evidence and in contrast with Shapiro and Stiglitz (1984), we demonstrate that worker‐owned firms exhibit not only more wage flexibility and less employment volatility than investor‐owned firms, but also lower expected wages than the latter. This is due to the informational advantage enjoyed by the firm’s owners relatively to the workers concerning some circumstances that affect the performance of the firm. We show this both in the case in which each investor owned firm offers labor contracts to single workers who act atomistically and in the case in which each investor owned firm negotiates labor conditions with its workers who act as a group (a ‘union’). Finally, we show that differences in attitudes towards risk between investor owned firms and their workers are not necessary to explain the typical combination of state‐independent wages and cyclical layoffs that characterizes most industries.

Keywords: Labor demand uncertainty, wage rigidity, labor contracts, asymmetric information, employment volatility, worker cooperatives

JEL Classification: D21, D86, J33, J41, J54

Suggested Citation

Bonatti, Luigi and Lorenzetti, Lorenza, Why Wages Tend to Be Lower in Worker‐Owned Firms than in Investor‐Owned Firms (December 2018). Annals of Public and Cooperative Economics, Vol. 89, Issue 4, pp. 563-580, 2018, Available at SSRN: https://ssrn.com/abstract=3283226 or http://dx.doi.org/10.1111/apce.12204

Luigi Bonatti (Contact Author)

University of Bergamo ( email )

Via Salvecchio, 19
Bergamo, 24129
Italy
39-035-2052540 (Phone)
39-035-2052549 (Fax)

University of Trento - Department of Economics and Management ( email )

Via Inama 5
Trento, I-38100
Italy
+04 61 882275 (Phone)
+04 61 882222 (Fax)

Lorenza Lorenzetti

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

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