Worker Ownership Effects on "Productivity" in the U.S.

By Brent Kramer,research associate, Fiscal Policy Institute

There is much skepticism about worker control among mainstream economists, who argue that not having hierarchical control would undermine productivity as traditionally measured (that is, looking strictly at output or value-added per worker, and not counting any effects on worker morale, health, safety, or hours of work).

While worker ownership is still relatively uncommon in the U.S. - and worker control, as in cooperatives, even more rare - there are enough firms which are indirectly employee-owned through Employee Stock Ownership Plans (ESOPs) that it is possible to compare their performance with traditionally owned firms. For my 2008 dissertation at the City University of New York Graduate Center,[1] I did exactly that.

On the theory that any sense of worker control, or culture of worker ownership, would depend on workers having majority control of a firm, I constructed a panel of over 300 firms in which ESOPs held more than 50% of the firm's stock (these I called EO firms, for employee-owned). I then used a major data-base to construct a group of "matching" traditional firms, each of which was in a very closely matching industry and of similar size to one of these EO firms, and having no employee ownership (these I called KO, for capital-owned). Using the same data-base, I obtained sales and employment information on both groups of firms.

Using a statistical procedure that compared each EO company to its matching KO company (or companies), I found that, on average, EO companies had 8.8% greater sales per employee during the period for which I had data. Fully (100%) owned companies had better "EO advantages" than the rest on this measure, smaller firms had better sales-per-employee advantages than larger ones, and firms with greater ESOP assets per employee (effectively the average employee financial investment) also did better. These additional results tend to validate my hypothesis that it was the culture of ownership in the EO firms that led to higher "productivity" (as measured by sales per employee).

I also conducted a survey of EO firm managers to try to determine which (if any) factors of worker control or influence might strengthen this indirect measure of productivity. While many proposed factors failed to show an influence, high worker influence on new products, work design, and marketing all seemed to improve the advantages that EO firms had over KO ones.

While there is no way to rule out the possibility that firms that became employee-owned over the years before this study were those that were already more productive because of better employment practices,[2] this analysis does indicate that employee ownership per se does not mean lower efficiency.

Firms don't need worker ownership to become better employers, or more efficient in their use of both material and human resources. But there is no "efficiency" reason for not moving toward more worker-ownership and control, and every reason to do so.

References

[1] "Employee Ownership and Participation Effects on Firm Outcomes," recently published in an abridged version as "Employee ownership and participation effects on outcomes in firms majority employee-owned through employee stock ownership plans in the US" in Economic and Industrial Democracy, November, 2010, 31(4) 449-476.

[2] One of the most common ways that firms became majority- or completely employee-owned during the past decades has been via conversion of closely held private firms to ESOP ownership upon retirement of the last active member of the ownership family.

The permanent link to this issue is http://geo.coop/node/618.

Photo courtesy of Brent Kramer.

About the Author

Brent Kramer, Ph.D. (economics, City University of New York, 2008), is a part-time research associate at the Fiscal Policy Institute (Albany and New York City, NY) and teaches introductory economics at the Borough of Manhattan Community College (CUNY, New York City). Brent had a long career as a worker-activist in a blue-collar job, and retired early, after which he entered this new career.

When citing this article, please use the following format:

Brent Kramer (2011). Worker Ownership Effects on "Productivity" in the U.S.
Grassroots Economic Organizing (GEO) Newsletter, Volume 2,Issue 7.
http://geo.coop/node/618