Collective accumulation of capital in Italian worker cooperatives: an empirical investigation on employment stability and income smoothing

A distinguishing feature of Italian worker cooperatives is that members, though owners of the firm, cannot be seen as residual claimants: the distribution of profits on the basis of capital stakes is limited by law; cumulated reserves cannot be shared among members even at the end of the life of the cooperative; the practice of ristorno (distribution of part of the net residual to members on the basis of the work relationship) is weakly applied; most of profits are accumulated into indivisibles reserves (from this point onwards IR), a completely collective fund, non divisible and non appropriable by individual members: this means that most of profits aren’t privately appropriated. This huge reinvestment of profits into IR is the focus of this work. What is striking from the economist’s perspective is that huge accumulation in an indivisible and non-appropriable pool seems to violate the need for a proper incentive scheme, both concerning work effort and investment. On the one hand, theory tells us that a potential problem of moral hazard exists, since the absence of residual claimancy implies the independence of work remuneration from the outcome of production; moreover, a wide literature exists on the positive relationship between profit sharing practices and productivity (e.g. Fitzroy and Kraft 1986, Kruse 1992), both in cooperative and capitalistic firms. On the other hand, there is the well-known Furubotn-Pejovich effect (Furubotn and Pejovich 1970), that is the risk of underinvestment by worker members because of their truncated time horizon within the firm (they cannot appropriate the returns of the investment beyond their employment time horizon). Moreover, it’s an interesting phenomenon from the point of view of the theory on the ownership of the enterprise. One of the main approaches within the new-institutional framework (Grossman and Hart 1986, Hart and Moore 1990), indeed, defines the owner of the firm as the individual who has the residual right of control (the right to take decisions over situations not defined ex ante); this definition implies that the owner has to be the one who appropriates the residual (and non predicted) benefits of the firm too. I therefore inquire whether a different aim lays behind this behaviour, that is different from profitmaximization and from the provision of high-powered incentives to members, and is instead a safety-oriented concern. I investigate this topic by means of empirical analysis carried out in the workers’ cooperatives associated with the Lega delle Cooperative e Mutue in the province of Ravenna (Italy). My methodology consists in matching three sources of data: balance-sheets quantitative data at the firm level; qualitative interviews of the cooperative board members; a survey by means of questionnaires to a sample of workers. In most literature, it’s widely recognized that cooperatives protect employment stability by making wages fluctuate. In this work, I propose a possible alternative pattern of employment protection, that involves indivisible reserves as key element: worker members may choose to earn lower