Dividend-Based Labor Remuneration and Tradable Shares in Worker Cooperatives

Abstract

This paper analyzes the possibility of creating worker cooperatives in which members are paid not through wages but through dividends calculated on the organization’s residual income, as stipulated by the economic theory of the labor-managed firm. It is shown how dividends paid to members can be linked to the value of their financial participation in the capital of the cooperative. In the presence of a financial market, cooperative shares would be issued and allocated to both members and non-member outside investors, thus addressing the problem of the under-capitalization of worker cooperatives. It is hypothesized that the strong financial incentives of this type of capital structure, together with involvement in the democratic governance of the cooperative, peer pressure, and other horizontal monitoring mechanisms, would support members’ intrinsic motivation to work and help overcome the problem of free-riding in the labor process. Flexible economic and financial structure in the absence of fixed wages would promote job stability, as already observed in existing worker cooperatives.

Keywords

• worker cooperative
• dividends
• wages
• cooperative shares
• employment relation
• free-riding