Advances in the Economic Analysis of Participatory & Labor-Managed Firms: Volume 11

The series Advances in the Economic Analysis of Participatory & Labor-Managed Firms was launched 25 years ago by Derek C. Jones and Jan Svejnar. Since then, Advances has been a leading forum for high-quality original theoretical and empirical research in the broad area of participatory and labor-managed organizations. Although general and specialized journals publish work in this field, many do so only occasionally. Advances has been the only annual periodical that presents some of the best chapters in the field in a single volume.

This volume of Advances in the Economic Analysis of Participatory and Labor-Managed Firms comprises nine original research chapters and a short comment.¹ The chapters cover a broad range of topics: from share ownership plan membership to determinants and performance outcomes of adoption of high performance work and pay practices, to changes in traditional participatory organizations. Geographically, the chapters span over a relatively wide range: from Northern Europe, a southeast European transition economy, Israel, Korea, Japan to an international corporation with operations in at least four continents.

Ownership of shares by employees in their own firm has grown substantially in the advanced world. In the past two decades, it increased in Britain (Pendleton, Whitfield, & Bryson, 2009), the United States (Kruse, Freeman, & Blasi, 2010), and in many EU countries (Pendleton, Poutsma, van Ommeren, & Brewster, 2005; European Federation of Employee Share Ownership, 2009). By 2004, one-fifth of British workplaces had share ownership plans covering one-third of private sector employees (Bryson & Freeman, 2010). In the United States in 2006, an estimated 18% of workers had shares in their own firm, some held through collective employee stock ownership plans, some bought through employee stock purchase plans that give employees a discount on shares, and some through their 401k retirement savings Plan money. In addition to owning shares, 9% of US employees had stock options with the firm. Taking account of the overlap, 24% had an ownership stake through shares or options (Kruse, Blasi, & Park, 2010, Table 1).

There is abundant evidence that innovative work practices (IWPs) of various kinds, such as teams, quality control circles, no-layoff policies, job rotation, and employee ownership, have spread rapidly in developed market economies during the past thirty years or so. Between 1983 and 1993, Freeman, Kleiner, and Cheri (2000) report survey evidence that the number of nonmonetary incentive programs offered by firms increased by 500% in the United States. Similar trends appear to be at work in other countries including the United Kingdom, Japan (e.g., Kato, 2000), Denmark (e.g., Datta Gupta, & Eriksson, 2004), and Finland (e.g., Kalmi & Kauhanen, 2008). Whereas the corresponding evidence for transition economies is much slimmer, the available evidence is also suggestive that such practices are limited though spreading.¹ Unsurprisingly, both theoretical and an empirical literature have appeared to examine the impact of IWPs on both business performance and employee outcomes. As different scholars from diverse fields in the broad area of industrial relations have applied varying approaches to explore several research questions, those literatures have grown rapidly. At the same time, while it is clear that analytical work of the kind is becoming commonplace for advanced economies, work that focuses on developing and transition economies is very slim. As it is important to determine whether findings for firms in advanced market economies carry over to other economies, the first contribution of this chapter is to extend the geographical coverage of the empirical literature. This we do by assembling and analyzing new survey data set for a large Croatian manufacturing firm with our chapter perhaps representing one of the first such investigations for a former communist economy.

One of the major challenges for organizations is to increase productivity in order to compete in national and world markets. Another challenge managers encounter is to attract and retain key workers, and ensure the involvement and commitment of workers as part of the route to high performance (e.g., Guest, Michie, Conway, & Sheehan, 2003). One prominent way to reach these goals is the adoption of high performance workplace practices, including financial participation.

This study provides an empirical analysis of the relationship between job design and the labor-market environment in which firms operate. In particular, I focus on one aspect of job design: the extent to which employees have discretion (autonomy) to organize their work. There has been considerable emphasis in the last 20 years on the importance of “high-involvement” work practices, which seek to give employees more decision rights at work. This literature has been concerned with the introduction of work practices such as team work, job rotation, or quality circles, and with the use of performance pay contracts. Within this literature, there are also some studies that focus more particularly on the extent to which employees have job discretion or autonomy. Discretion is an important characteristic of jobs because much of the redesign effort that has been conducted in the last years has aimed at giving employees more power to make decisions at work, and performance gains are largely attributed to these changes.

Compensation systems have been shifting away rapidly from a fixed-wage contractual payment basis in many nations around the world (Ben-Ner & Jones, 1995). Particularly prominent is the explosion in the use and interest in employee financial participation schemes, such as profit sharing, employee stock ownership, stock option, and team incentive (or gainsharing) plans. With the rising use and interest in such employee financial participation schemes, many studies have examined their effects on enterprise performance in industrialized countries.¹ Most prior studies consider either profit sharing plans (PSPs) in which at least part of the compensation for no executive employees is dependent on firm performance (typically profit)² or employee stock ownership plans (ESOPs) through which the firm forms an ESOP trust consisting of its nonexecutive employees and promotes ownership of its own shares by the trust.³ Moreover, an increasing number of firms (in particular “new economy” firms) are extending the use of stock option plans (SOPs) to include nonexecutive employees in recent years.⁴ Finally, with the rising popularity of “high-performance workplace practices (notably self-directed teams),” more firms are introducing team incentive plans (TIPs), which makes at least part of the compensation for employees dependent on performance of the team or work group to which they belong.⁵

Many firms in many countries started to issue stock option schemes to their employees in the 1990s (Murphy, 1999).¹ In the course of time, the mushrooming of schemes has generated a heated public debate on the pros and cons of this compensation method. In one camp are those who argue that stock options are nothing more but a compensation mechanism by which managers transfer excessive fortunes to themselves without a real enhancement in firm performance. On the other hand, proponents underline that options provide managers and employees financial incentives to make better decisions, work harder, and share valuable information in a way that enhance firm performance. Thus, they see options – more or less– as a major innovation in managerial and personnel compensation (or more generally in human resource management). However, at the moment there is no theoretical or empirical consensus how stock options and managerial equity ownership affect firm performance in economic literature (Core, Guay, & Larcker, 2003).

In their now classic book What Do Unions Do? Freeman and Medoff (1984) open their discussion as follows (p. 3): “Trade unions are the principal institution of workers in modern capitalistic societies. For over 200 years, since the days of Adam Smith, economists and other social scientists, labor unionists, and businessmen and women have debated the social effects of unionism. Despite the long debate, however, no agreed-upon answer has emerged to the question: What do unions do?” In the remainder of the book, the authors provide a coherent answer to this question and, as a result, What Do Unions Do? has become firmly established as a cornerstone for the economic analysis of labor unions. However, since the first publication of the book, developments have emerged that are inconsistent with Freeman and Medoff's predictions regarding the effectiveness of unions. One such development, for example, is the precipitous decline in union density in many countries around the world; another is the growing importance of, and interest in, alternative forms of employee representation.

We envision an enterprise owned by an association of its employees. The enterprise may employ nonmember as well as member labor. All are paid the same wage, but member-employees also accrue credit toward a pension as a benefit of their employment. Nonmember employees do not receive this benefit. Nonmember employees may be allowed to “buy in” as members for a share value that does not dilute the retirement fund, but only at the discretion of the existing members. As a consequence, the workers’ association is not strictly a cooperative, since membership is not “open.” One of the purposes of this inquiry, however, will be to determine under what circumstances the workers’ association will recruit new members.

This chapter analyzes the antecedents and consequences of transformations that have recently been occurring among Israeli kibbutzim. After serving for nearly a century as some of the world's best known examples of organizations that distribute resources “from each, according to ability, to each according to need,” most kibbutzim now pay their members differential salaries on the basis of the market value of their work.

During the great depression of the 1930s, facing drastic unemployment and declining incomes, many of the European countries affected engaged in protecting their national markets through import protection. This beggar-thy-neighbor policy gave the economists’ profession an impetus to show what was happening and to conclude that restriction of free trade – the beggar-thy-neighbor policy based on repetitive retaliation – is detrimental to the economy, and thence the conclusion and recommendation of free trade.