Equality Under Threat by the Talented: Evidence from Worker-Managed Firms

43 Pages Posted: 4 Jan 2014

See all articles by Gabriel Burdin

Gabriel Burdin

University of Leeds - Faculty of Business; IZA Institute of Labor Economics

Abstract

Are high-ability individuals more likely to quit egalitarian regimes? Does the threat of exit by talented individuals restrict the redistributive capacity of democratic organizations? This paper revisits that long-standing debate by analyzing the interplay between compensation structure and quit behavior in the distinct yet underexplored institutional setting of worker-managed firms. The study exploits two novel administrative data sources: a panel of Uruguayan workers employed in both worker-managed and conventional firms; and a linked employer–employee panel data set covering the population of Uruguayan worker-managed firms and their workers from January 1997 to April 2010.A key advantage of the data is that it enables one to exploit within-firm variation on wages to construct an ordinal measure of the worker ability type. The paper's four main findings are that (1) worker-managed firms redistribute in favor of low-wage workers; (2) in worker-managed firms, high-ability members are more likely than other members to exit; (3) the hazard ratio of high-ability members is lower for founding members and for those employed by worker-managed firms in which there is less pay compression; and (4) high-ability members are less likely to quit when labor market conditions in the capitalist sector are less attractive. This paper contributes to the study of the interplay between equality and incentives that permeates many debates in public finance, comparative economic systems, personnel and organizational economics.

Keywords: labor managed firms, redistribution, compensation structure, job mobility

JEL Classification: H00, J54, J62, M52, P0

Suggested Citation

Burdin, Gabriel, Equality Under Threat by the Talented: Evidence from Worker-Managed Firms. IZA Discussion Paper No. 7854, Available at SSRN: https://ssrn.com/abstract=2374635 or http://dx.doi.org/10.2139/ssrn.2374635

Gabriel Burdin (Contact Author)

University of Leeds - Faculty of Business ( email )

Leeds LS2 9JT
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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