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Terence Highsmith's avatar

Interesting! However, I'm skeptical about the marginal productivity of worker co-ops over incentive pay. It can be tricky to distinguish between the two because worker co-ops almost always intrinsically implement a form of incentive pay, that is, the worker's pay varies with the firm's performance, whereas in many traditional capitalist firms, salary is fixed. Economic theory *can* predict that certain compensation schemes have free-rider problems, but other compensation schemes---especially pay for performance---do not. In fact, one of the most popular models today (principal-agent) predicts that pay for performance is optimal, group bonuses are good, and fixed salaries are worst.

This has created another mystery: why the heck do so many companies pay fixed salaries? It's probably because of risk aversion. People like having a consistent salary rather than getting paid $0 today and $250,000 in two years. (And that seems like a reason that might apply to worker co-ops as well.)

Anyway, the empirical evidence on worker co-ops productivity is not particularly convincing to me for this reason. For example, the experiment you cited cannot distinguish this because it compares a group that votes on its compensation contract to a group that does not, but the only allowable compensation contracts are group bonuses or tournament pay rather than individual pay-for-performance. Of course we should expect the group that can vote to perform better: the group vote is *itself* mimicking a selection effect, where people vote for the incentive contract they know will motivate themselves. If you as a manager in a capitalist firm knew your employees well enough to know which compensation contract would work best, you could re-create this effect in a capitalist firm (note: I'm not saying there is selection bias; I'm saying that the experiment's average treatment effect is equivalent to a sort of selection effect in a natural environment).

Also, we (economists) don't really have a good understanding of organizational structure in general. Early organizational economics models predicted that managers are useless, and newer models don't do much better. We still have no idea why managers are everywhere! But that too is an empirical observation that we shouldn't ignore. Does it mean that hierarchical organizational structures are better? No. But it does suggest that cooperative structures have some major frictions that prevent their implementation, at least.

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Joe James's avatar

I think the answer is pretty simple: The people who work in coops are more likely to select for conscientiousness and other traits that correlate with being more-productive-than average. Another way of saying that is that they’re true believers. The other reason is that capitalist ownership likely scales easier than worker coops. It’s faster to make decisions, workers don’t need to put as much thought, there’s probably less bureaucracy and procedure. So even if the coops are 5-10% more productive when they hit maturity, it may be that it doesn’t take as long to reach maturity for more capitalist firms because the lack of egalitarianism streamlines the process.

Anecdotally, the people who care about co-ops in America are more likely to be, like, booksellers or whole foods-esque grocery shoppers. Working class people in my experience only want to own a business if they don’t want to be told what to do (I think there is social science on small business owners saying as much) and otherwise are very much just at their workplace to collect a paycheck. Heck, I’m not even a working class person and I wouldn’t want to be a co-owner at my hypothetical workplace. Too much responsibility. And yeah, there are low wage workers who’d generally benefit from more input and protections in the workplace, but I think if you gave them that, many of them would still not want to be owners, and many of them would still be lower productivity.

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