On the 'Employment' Decision of a Labour-Managed Firm

The conventional analysis of a variable membership labour co-operative assumes that membership can be reduced, if required, to increase income per head (see, for example, Vanek, 1970). This implies a highly inequitable treatment of those who are excluded compared with those who remain. We prefer instead to consider a decision process suggested by Steinherr and Thisse (1979) which treats all members, ex ante, equitably. We assume that a co-operative first votes on whether to reduce membership or not, and then allocates any resulting redundancies randomly. In Section II we define a range of conditions in which a cooperative will not vote to reduce membership although contraction would raise income per head for those remaining, since voters who face the possibility of exclusion will take this into account. In Section III we present the implications of these results for the supply functions of the firm, and show that supply depends on initial membership, that supply curves may not be reversible, and that they may contain discontinuities, kinks and backward-sloping segments even with a smooth underlying technology. A more general conclusion to be drawn is that a satisfactory theory of labour-managed firms should rest on an analysis of decision-making procedures and not on the imputation of an arbitrary maximand to the firm as a whole

Classification of discontinuities · Economics · Ex-ante · Labour economics · Microeconomics · Cooperative Studies and Economics · Mathematics · Merger and Competition Analysis

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