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 non- members (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