Changing our view of worker co-operatives

Employee-owned firms are more productive than conventional firms in a number of sectors, says a report into worker co-operatives. What do we really know about worker co-operatives?, published...

Employee-owned firms are more productive than conventional firms in a number of sectors, says a report into worker co-operatives.

What do we really know about worker co-operatives?, published by Co-operatives UK, compares worker co-ops with conventional businesses, analysing productivity levels and challenging some of the assumptions.

“Worker co-operatives have traditionally been viewed as small, specialised and undercapitalised organisations,” said Virginie Pérotin, professor of economics at Leeds University Business School, who authored the report.

“It is commonly thought they thrive in unusual conditions and cannot possibly constitute a serious alternative to conventional firms.

“While this view has long been shared by many economists studying labour-managed firms … evidence suggests common ideas about worker co-operatives should urgently be revised.”

One assumption addressed by the report is the size of worker co-ops.

“It is often thought worker co-operatives must be financially constrained, and a small size is sometimes regarded as a condition for workplace democracy to function,” writes Prof Pérotin.

But what is not widely understood, she says, is that most firms are very small – 93.7% of UK firms have fewer than 20 employees. And where data for worker co-ops is available, they are actually larger than other firms.

worker coops
Virginie Pérotin’s report, published by Co-operatives UK

“Worker co-operatives could be larger because they are created larger, or because they grow faster and/or survive longer than conventional firms,” she says.

While worker co-operatives represent a very small proportion of all firms in most countries, adds Prof Pérotin, they are more numerous than is usually thought. At least 25,000 can be found in Italy, about 17,000 (employing some 210,000 people) in Spain, 2,600 (employing 51,000 people) in France and about 500 to 600 in the UK.

In terms of firm creation and survival, the report finds that labour-managed firms survive at least as well as other businesses, and have more stable employment – because they adjust pay, rather than employment, in response to market changes.

“In response to demand shocks, co-operatives adjust pay more than employment, and their employment adjustment is slower and more limited than other firms,” says Prof Pérotin, looking at studies from the US (1968-1986), Italy (1982-1994) and Uruguay (1996-2005).

“These findings imply that worker- managed firms may hire less than other firms in periods of growth, but importantly may also preserve jobs better in downturns.”

The report also addresses productivity. Citing a 2012 paper she co-authored with Fathi Fakhfakh and Mónica Gago, Prof Pérotin explains how studies have compared the total factor productivity of worker co-operatives and other firms. Total factor productivity is the productivity of the firm taking into account the firm’s capital as well as its labour, estimating the difference in production between the two types of firms once employment, capital, industries and other relevant factors are needed.

Analysis shows that on average, conventional organisations can increase productivity by applying the mechanics of employee-owned firms, says Prof Pérotin. “In other words, the way worker co-operatives organise production is more efficient.”

She adds: “The evidence presented in this paper paints a rather different picture from the received view of worker co-operatives as small, specialised, undercapitalised and rather unlikely businesses.

“We need to revise our view of worker co-operatives.”


In this article

Join the Conversation