“Equilibrium unemployment and wage setting in worker owned enterprises”

In accordance with the empirical evidence and in contrast with Shapiro and Stiglitz (1984), we demonstrate that worker owned firms exhibit less employment volatility than investor owned firms and lower equilibrium wages than the latter. Our result is due to the informational advantage enjoyed by the firm’s owners which imply a compensation requested by workers for employer opportunism and to the role of horizontal control among worker which can reduces the equilibrium level of wages. Given more efficient monitoring and the absence of wage premiums compensating the expected costs of contract failures, we show that efficiency wages in cooperatives are lower than in investor owned firms while employment is confirmed to be always higher. We conclude that the S-S (1984) result, as applied to worker cooperatives,, is only a special case of a wider class of equilibria in the presence of contractual imperfections in the agency relation. Finally, we conclude that differences in ownership of the firm can change unemployment levels.