The Behavior of Worker Cooperatives The Plywood Companies

The Behavior of Worker Cooperatives: The Plywood Companies of the Pacific Northwest

Basic Questions • How different do cooperatives and conventional firms respond to common changes in their economic environment? • How profitable has membership in the coops been?

Characteristics of Coops • Heterogeneity • Fusion of ownership & employment (workers are shareholders) • Non workers also employed & shareholders have preference in the event of layoffs • Probationary period for new workers • Sale of stock must be approved by members of the board • Coop has priority in buying stocks (transfer is allowed within the family of the worker)

• One stockholder-one share-one vote for the board of directors • No additional compensation for services on the board • No pay differentials except for nonmembers (top management positions) • Variation of job assignments & rotation of tasks • Returns to ownership in the form of wages • No dividends paid on common stock

• Main concern is the maximization of wage rather than profit • Employee-shareholders think as workers, not as owners.

Advantages of Coops • Higher effort • Less supervision compared to conventional firms • More responsible with the firm`s assets • Volatility of employment is low (guaranteed employment overtime )

Disadvantages Of Coops • Difficulty in raising initial capital (Usually Sell of stocks to workers, loans) • High turnover of directors of the board • Excessive involvement of shareholders in daily operations of the firm • Excessive involvement in current financial position with insufficient considerations of the future • Shareholder's labor income &capital income are subject to the same risk (Individual ties up his assets in the coop)

Responses to input and output prices • Findings from Data • Average employment in union firms and coops is almost the same • Coops operate with higher inventories of logs (to reduce the effect of sharp changes in price of raw materials) • Coops workers work more hours per day • Annual earnings differentials between union mills and coops are smaller than hourly earnings differentials

Employment & Earnings • When it comes to labor costs reduction, coops protect employment and tolerate more moderate wage increases than conventional firms (= union and non union firms) • Coop`s employment responses depend on the number of employees that are members • Gradual transformation of coops into organizational firms (fewer shareholders hire labor, more efficient? )

Effects of changing input and output prices • Classical Firms • Increase in output price, increases employment, hours per worker and output but has no effect on the real wages. • Increase in input price decreases employment, hours and output (responses in input prices are smaller than output prices)

• • Unionized firms Responses are the same as the classical firms Coops Hours and employment are uncorrelated with output prices • A change in the output prices results in almost an equal change on the real wages • A change in the input prices results in a change in the real wages that is more than hours and employment • Output responds positively in product prices

Profitability of coop membership • Small difference in annual earning between unionized mills and coop mills • Risk of loosing work is less in coops because of higher security of employment over time • Undervaluation of cooperatives shares (workers are risk averse, therefore they reduce the supply of labor and capital)

• Conventional firms detach the supply of labor from the supply of capital because workers are not obliged to buy shares

CONCLUSIONS • Coops are more likely to adjust earnings and less likely to adjust earnings employment to changes in output and input prices than is conventional firms • Same risk for labor and capital