By David Nehlsen
Abstract: This memo offers a summary of the findings from the author’s Honor’s Thesis in Cooperative labor, as well as a policy proposal which could put such findings into practice. Worker and Consumer Cooperatives show promise as an alternative business model, with evidence of greater worker satisfaction, productivity, and resilience, and lower rates of worker turnover. Despite these promises of success, Cooperatives remain a rarity in business. One cause for this underrepresentation is likely ignorance, as polling indicates only 11% of Americans know what a cooperative is. More awareness of cooperatives and their benefits could lead to a substantial increase in cooperative businesses and participation. My proposal suggests the inclusion of cooperative business education in high school economics classes to ensure people are aware that successful alternatives exist.
I. Background
Cooperatives are a business organizational model wherein decisions are made democratically. In a cooperative, each member has partial ownership of the company, with different types of cooperatives having different rules for who can become a member. The University of Wisconsin – Madison Center for Cooperatives is an organization dedicated to researching and developing cooperative labor in Wisconsin. They have played a major role in the advancement of cooperative labor in Wisconsin since 1962 and are an authoritative voice on the issue. They detail two types of cooperatives, in particular, to which this Memo refers (“Types of Co-Ops.” UW Center for Cooperatives.):
- Consumer Cooperatives: Owned by members or customers who use the service, and used in many industries/sectors, such as Credit Unions or Grocery Coops.
- Worker members Cooperatives: Owned by employees and used in many industries/sectors such as retail, manufacturing, and care.
The term “Cooperative” as used in this memo, refers to either definition or some combination of them. Cooperatives exist across sectors of all sorts, including insurance, finance, grocery, housing, and social services. Altogether, there are about 30,000 cooperatives in America, employing over 800,000 people, and maintaining over 350,000,000 different memberships (Nadeau, 2012). Some readers may be familiar with some successful cooperative businesses such as local Credit Unions, Housing Cooperatives, Madison’s Willy St. Co-op, Villari’s Martial Arts Cooperative, or Basics, among countless others. “Worker Cooperatives,” those owned exclusively by employees, account for only about 300 of these cooperatives and about 2,400 employees (Worker Cooperative FAQ, 2021). “Consumer Cooperatives,” on the other hand, account for most of the rest (Nadeau 2012, p. 40). This model has been endorsed by both prominent conservative and progressive leaders such as President Ronald Reagan and Senator Bernie Sanders. Cooperative labor also enjoys consistent support from Americans across the political spectrum – 72% Of Republicans and 74% of Democrats (Flamisch, 2019). The bipartisanship of this model could make it an effective step forward for Americans. Such solutions are increasingly rare and valuable as political divisions in America become greater each year (“Political Polarization…” 2021). Despite the prominence of cooperatives, one 2020 poll found that only 11% of the population knew what the model was (Brodsky, 2020); accordingly, the cooperative model is suffering significantly from ignorance.
II. Benefits of Worker Cooperatives
Summary: Cooperatives are a popular, bipartisan model among those familiar with them because they show significant promise in improving labor. Cooperatives show promise in maintaining or improving worker satisfaction and wellbeing, business productivity, company resilience, employee wages, and employee turnover rates.
Worker Satisfaction and Wellbeing:
Studies indicate that cooperatives and businesses which prioritize worker autonomy have significantly higher levels of worker satisfaction (Bruni, 2019; Carr, 2013). In turn, worker satisfaction is correlated with general life satisfaction and happiness, as well as lower rates of depression, anxiety, and stress (Allan, 2018). Cooperatives have also been found to foster an environment of social trust between workers (Sabantini, 2014). The term social trust, for the purposes of this study, was a measure of how much trust an individual had in those around him based upon a self-report questionnaire. This Italian study linked cooperatives with a 47.5% increase in employee social trust, while not a single respondent indicated that the model had damaged their social trust (n = 817). Strong communities are an essential aspect of well-being and life satisfaction (Ross and Searle, 2016). Accordingly, cooperative labor shows promise as an effective conduit of greater worker satisfaction, personal wellbeing, and social cohesion.
Business Productivity:
A 2016 meta-analysis of Worker Cooperatives, based upon 102 samples representing 56,984 firms, found that Co-Ops have a small but significant positive relationship with productivity when compared to traditional businesses (O’Boyle, 2016). Several other studies have replicated these same findings (Craig and Pencavel 1992; Estrin, Jones, and Svejnar, 1987; Pérotin, 2016). An example of this productivity boost is in Cooperatives particularly effective use of limited supplies. While larger corporations are often able to afford better or newer equipment, some studies have found cooperative employees make up for this gap through more efficient resource management (Pérotin 2016, p. 18-19). For many, this boost in productivity would be, in and of itself, sufficient reason to favor the cooperative business model.
Company Resilience:
Resilience – a company’s longevity and resistance to collapse – is among the most substantive benefits associated with cooperative labor. Researchers have found that between 1988 and 2001 companies with “employee ownership stakes of 5% or more were only 76% as likely…to disappear” compared to traditional businesses (Park 2004). An excellent example of Co-op resilience is Credit Unions, which have a rich history of riding out recessions and depressions better than traditional banks, such as in the 2007-2009 Great Recession (Astore, 2016; Nadeau 2012, Ch. 1). During this period, credit unions were significantly less affected by the recession, and were able to bounce back far quicker than their traditional counterparts. As a final example, among many others, a 2019 study by the Democracy At Work Institute found that the average U.S. Co-op has a survival rate of 25.6% at 6-10 years, and 14.7% at 26+ years, as compared to 18.7% and 11.9% in traditional businesses (Cooperative Employee Wage, 2021).
Employee Wages:
The wage structure offered by Worker Cooperatives could help alleviate growing income inequality. A 2019 study by the Democracy At Work Institute found that most coops have an average pay-scale ratio of 2:1 between the highest and lowest paid employees, compared to a 303:1 ratio in the average large corporation (Cooperative Employee Wage, 2021). This narrowing of pay ratios is excellent news for the 92% of Americans who would like to see a significant reduction in income and wealth inequality in America (Anita, 2021).
Regarding individual wages, the data is not clear whether cooperatives or traditional businesses offer higher wages on average. Virginie Pérotin, in her 2016 Co-op study, noticed that wages for cooperative employees were very volatile because they often choose to lower wages collectively during an economic downturn, rather than laying people off (Pérotin 2016, p. 19). During periods of growth, coops seem to respond quickly, raising wages once again. In general, however, entry-level positions tend to be paid more, while highly skilled positions tend to be paid less on average (Cooperative Employee Wage, 2021). This pay-scale structure is advantageous in reducing income inequality and is beneficial for unskilled laborers; on the other hand, one study has found that such a narrow pay scale leads to a three times higher turnover rate among highly skilled laborers in cooperatives when compared to traditional businesses (Burdin 2016). A 2:1 pay-scale model comes with both advantages and disadvantages and may be too narrow for full optimization.
Employee Turnover:
Finally, in close relation to resilience, cooperatives offer additional job security with a lower turnover rate (Pérotin 2016; Hoffmann, 2006; Park, 2018). This includes both voluntary separation and involuntary dismissal from companies. As mentioned in the previous section, this is in part due to cooperative businesses’ tendency to voluntarily adjust employee wages before laying people off. The opposite tendency, to adjust employment before wages, is significantly more common in traditional businesses (Pérotin 2016); furthermore, when cooperatives must adjust employment, they tend to lay off fewer employees (Ibid.; Hoffmann, 2006). As mentioned, there is an exception to this trend for highly skilled laborers.
III. Potential Issues with Cooperatives
Summary: Substantial research suggests that cooperatives perform as well as and often better than traditional businesses by the metrics of well-being and happiness, wages, productivity, resilience, and turnover. As with any policy decision, however, there are pros and cons to cooperative labor, and it would be a disservice not to briefly discuss some of the areas in which we can expect more difficulties compared to a traditional organization. Compared to traditional businesses, Cooperatives can be at a disadvantage when it comes to funding, democratic participation, and public awareness.
Selection Bias
In considering the data outlined in the previous section, it’s important to remember that this data quite likely suffers from selection bias. Workers who prefer to work for a democratic institution may be seeking them out; conversely, there may be a substantial portion of the population which would not thrive in such an environment. For example, one 2011 study found that some fluctuating percent of workers were actually less satisfied with more workplace autonomy and preferred to simply be told what to do (Castel, 2011). It could be the case, then, that the benefits of cooperatives are diminished by introducing them to workers who would have otherwise never sought out such a system. It is for this reason that this memo does not advocate for any coercive measures to promote cooperative businesses; instead, the best solution seems to be to ensure as many people are aware of alternatives as possible, allowing those who would prefer such a system to seek it out.
Funding
One area of concern for cooperatives is funding, of which they have a much more difficult time acquiring (“Financing a Cooperative,” 2020). This stems, in large part, from the fact that cooperatives are not as interested in maximizing profits as traditional organizations; instead, they prefer to distribute their profits among employees, contributing to lower costs, wage growth, bonuses, and benefits. Additionally, voting in cooperatives is based upon membership, and not company shares as in most traditional organizations. These factors create far less incentive for capital investors to become involved in cooperative businesses. Because cooperatives are fairly novel in the American market, it can also be more difficult for them to get loans from financial institutions; fortunately, this is an issue which should become far less relevant as more research on the efficacy of cooperatives becomes available, and especially if the model begins to represent a greater share of the economy. Cooperatives often use membership fees to offset this disadvantage; furthermore, more equitable policy decisions, which are not the focus of this memo, could further offset this.
Democracy and Motivation
Because Cooperatives are democratic institutions, they come with many of the trade-offs associated with such structures in exchange for their benefits. For example, decision making in democratic institutions is often slower, which can make a major difference in industries where days and hours are pertinent to profit margins. Additionally, democratic institutions often struggle with getting people involved in voting. Consider how voting patterns work in political democracies. In 2020, one third of eligible American citizens didn’t vote in the national election (Montanaro, 2020). This number is significantly lower for mid-term and off-year elections. Just as the American government has difficulty keeping people politically involved, this is likely an issue cooperative will run into with their own democracies. Political Scientists are currently researching ways to keep voters more involved in political democracy, and economic democracy would likely benefit from this very same research.
Lack of Public Awareness
Among to most easily remediable issues with Cooperatives is a simple lack of awareness. As previously discussed, only 11% of Americans in a 2020 poll knew what a Cooperative was (Brodsky, 2020). Other polls have found similar levels of awareness. It seems, then, that cooperatives are suffering from ignorance; accordingly, more awareness of them and their benefits could lead to a substantial increase in cooperative businesses and participation. Worker cooperatives are beneficial both to individual workers (especially through worker satisfaction, resilience, and lower turnover rates) and the government (especially through higher productivity and reduced income inequality). As such, there is an incentive for both taxpayers and the government to encourage the flourishing of cooperative labor. Effective ways of increasing awareness include investment in advocacy groups or educational programs; the latter of which being the proposal of this memo.
IV. Alleviating the Lack of Awareness Through Education
Summary: Because cooperative labor promises extensive advantages to the economy, and a lack of awareness is limiting the benefits of this system, it is worthwhile for communities to invest in education on cooperatives. The inclusion of cooperative businesses as a topic in High School economics courses would be one effective way to increase awareness. The benefits of cooperative labor indicate this step forward is worth the effort.
A High School Curriculum Adjustment
A satisfactory explanation of Cooperatives and their benefits would not take significant time or resources. There are many short, cheap, and easily accessible resources on what Cooperatives are; many of which were influential in the development of this project. The Cooperative Solution (2012) by E. G. Nadeau, for example, is an extraordinarily cheap resource with only 124 pages which has been cited throughout this memo several times. The short essay covers what cooperatives are, where they succeed, where they may struggle, and what can be done to improve and encourage them in the future. “What Do We Really Know about Worker Co-Operatives?” by Prof. Virginie Pérotin is an incredibly accessible, free resource on Cooperatives, numbering only 19 pages. This article explains what Cooperatives are, and what their benefits are. Resources such as these could be very effective classroom tools, which could be effectively fit into a curriculum in as little as 1-2 dedicated days of instruction. The inclusion of such resources would fit in well with other standard economic instruction, such as topics relating to Business, Entrepreneurship, and Organizational Management. Such instruction does justice to the pupil, ensuring they’re aware that alternative business models exist beyond the status quo they’ve come to know. Because cooperative labor is such an easy idea to communicate, and materials on the subject are both cheap and accessible, the inclusion of such instruction in high school institutions would be feasible and efficient.
Benefits of Education
Greater awareness of cooperatives, or other alternative business models, may lead consumers to favor these types of businesses when making consumer choices. This would in turn contribute to their growth and success in the market, in turn benefiting local communities. For students gifted in entrepreneurship or business management, such awareness could increase the likelihood of their business’s success (based upon the provided resiliency, productivity, and turnover statistics), should they choose to pursue such a model. As such, Cooperative education has the potential to benefit the next generation, our government, the economy, and our communities.
V. Conclusion
Worker cooperatives are far from the only form of labor organization found in the United States. For example, labor unions are perhaps the most well-known form of labor organization, yet people remain unfortunately divided on them. A 2020 Gallup poll found that 83% of Democrats and 45% of Republicans favored labor unions (Brenan, 2021). This 38% partisan divide in support makes Unions an unfortunately divisive solution to modern labor problems. Worker Cooperatives, on the other hand, promise many of the same benefits that unions do, without many of the drawbacks; furthermore, there is at present bipartisan support for their development by political leaders familiar with them. Cooperatives are a unique, sustainable improvement on the American economy, and are an attractive step forward due to the idea’s bipartisanship. Just as we’ve enjoyed the benefits of democracy politically, it’s possible to reimagine our relationship with labor as an equally democratic enterprise for those who want it, sharing in all the associated benefits.
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