If worker co-operatives work, why aren’t there more of them? - LSE Business Review | Caroline Carter
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Firms which are employee-owned offer great opportunities for their staff. Generally they are at least as productive as conventional firms. Yet very few businesses are structured that way. Gabriel Burdin and Fabio Landini argue that a market failure in information causes the public to misjudge how viable co-operatives really are and dismiss them as less attractive than traditional businesses.
Why don’t more employees own and control the companies they work for? Worker co-operatives and other employee ownership arrangements are widely praised for reducing pay inequality, improving workers’ wellbeing and offering a more resilient business model that helps secure jobs in the face of negative shocks.
Despite this, firms with majority workforce control remain rare in modern market economies. Worker co-operatives account for no more than 4 per cent of private sector workers in any country. And only a minority of employee stock ownership plans (ESOPs) are majority employee-owned. Where they do exist, they tend to cluster in specific regions, such as the Mondragon co – operatives in the Basque Country, in Spain, (which include Eroski, the supermarket in the image of this blog) or la Lega Cooperative network in Emilia Romagna, in Italy. These often have limited ability to scale or diversify across sectors and the wider economy. This persistent gap between promising evidence and limited diffusion raises a fundamental question: if worker co-operatives work reasonably well, why don’t we see more of them?
Co-operatives are more successful than standard explanations suggest
Several explanations have been proposed for why co-operatives are not more common. Because worker-members typically contribute both labour and capital, they may bear concentrated financial risk – by carrying “all their eggs in one basket” – which may confine co-operatives to more stable industries. Egalitarian pay systems can foster solidarity and motivation. But they may also make it harder to attract and retain experienced managers who could earn more elsewhere. Older members nearing retirement may resist investments or job creation that reduce current payouts, since they benefit while they are employed.
And while workplace democracy brings important benefits, such as participation, legitimacy and local knowledge, it also creates collective decision-making costs as workers of different ages, roles and skills may disagree over the policies that best serve the co-operative’s future.
Together, these arguments portray employee ownership as costly and inefficient – supposedly too weak to survive market competition. But the empirical record tells a different story. Evidence from America, El Salvador, France, Italy, Portugal, Spain and Uruguay does not support this pessimistic prediction. Once established, co-operatives generally match conventional firms in productivity and survival – and in many instances, they perform better.
Beliefs and the demand for employee ownership
If existing co-operatives do not face fundamental disadvantages, then their rarity must stem from something else: too few are formed in the first place or converted from traditional businesses. Barriers such as workers’ limited wealth, risk aversion and poor access to credit matter, but they cannot fully explain the lack of co-operatives, especially in labour-intensive service industries with modest capital needs.
In a recent paper, we argue that people’s beliefs play a key role. Individuals may misjudge how viable co-operatives really are, dismissing them as less attractive than traditional businesses. Such misperceptions can arise for several reasons. When an organisational structure is rare, most people have little direct experience with it. This encourages overgeneralisation from a small number of cases, which may not be representative. Negative examples – poorly run cooperatives or cases of fraudulent contracting through bogus co-operatives – may be especially salient and memorable, reinforcing pessimistic impressions.
More broadly, rarity itself can undermine legitimacy: if most firms are investor-owned, people may infer that alternative models must be inferior, even if this inference is unwarranted. In support of these arguments a recent poll by the International Cooperative Alliance revealed that 63 per cent of young respondents reported little to no knowledge of co-operative business models and felt youth participation in co-operatives was inadequate. As a result, many people view worker co-operatives as less appealing even when their true attributes are comparable.
Testing whether beliefs matter
To establish causal evidence on the influence of beliefs, we conducted a preregistered experiment with 2,000 young adults in Italy, where worker co-operatives account for about 3 per cent of private-sector employment. Participants were first asked how they thought co-operatives performed compared to investor-owned firms in terms of productivity, survival, pay inequality and job stability. On average, they held much more pessimistic views compared to the assessments made by international experts in a parallel survey conducted as part of the same study. To test whether these perceptions could be changed, half of the participants were shown the distribution of expert opinions based on existing evidence on how worker co-operatives perform relative to conventional firms.
The results were clear: exposure to expert information made participants more optimistic about worker co-operatives and more supportive of public policies that promote them. They were also more inclined to view them as attractive career options relative to more conventional work arrangements. The effect on policy attitudes was comparable in size to the average gap between left- and right-leaning respondents, and it persisted in a follow-up survey conducted a week later. Text analysis of open-ended responses reinforced these findings: participants who were exposed to expert assessments used fewer negative words such as “instability” or “low income” and more positive ones such as “solidarity” and “collaboration.”
A belief-based market failure
Taken together, these results point to a belief-based explanation for the limited diffusion of employee ownership. Even when alternative organisational forms perform well, distorted perceptions can discourage individuals from engaging with them and reduce policy support. In this sense, the rarity of worker co-operatives may reflect not only economic factors, but also a kind of market failure in information and belief formation.
This perspective has important implications. If pessimistic beliefs are part of the problem, then low-cost informational interventions – especially those grounded in credible, expert-based evidence – can play a meaningful role in shifting attitudes. Young people, in particular, appear responsive to such information at a stage when their career expectations are still evolving.
How to encourage co-operatives
Of course, information alone will not transform the organisational landscape overnight. Financial constraints, legal frameworks and managerial challenges remain important barriers to employee ownership. But our results suggest that beliefs deserve more attention in debates about the future of work and corporate governance.
Understanding how perceptions shape demand for different organisational forms is crucial and timely, as dissatisfaction with traditional employment relationships and interest in alternative models of capitalism grow. Making the economic experiences of employee ownership more visible may raise their legitimacy, creating space for these models to be taken seriously – not as marginal curiosities, but as viable options alongside conventional firms.
If beliefs can change, so too might the range of organisational arrangements that people are willing to imagine, support and ultimately build.
This blog post is based on “ Beliefs and the Demand for Employee Ownership ” published by the IZA Institute of Labor Economics.
This article gives the views of the authors, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment.
Image credit: Ima_ss provided by Shutterstock.
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