Is there a trade-off between earnings and job stability?
Many economists now recognize that companies wield significant power over wages and working conditions, often with important implications for social welfare and inequality. This has renewed interest in labor institutions that strengthen workers’ influence, such as unions, collective bargaining, and mechanisms for worker representation on company boards. Among these, one unique yet often overlooked model stands out: worker-owned cooperatives.
Unlike traditional businesses, where investors or delegated managers make key decisions, cooperatives are run by the workers themselves. This distinctive approach has intrigued economists for decades, yet direct comparisons between cooperatives and conventional firms remain relatively recent in economic research. Studies suggest that cooperatives and other employee ownership structures help reduce wage inequality, protect jobs during economic downturns, and, in certain cases, enhance productivity and employee well-being.
A key question remains: how does beginning a career in a cooperative shape long-term job prospects? This issue is particularly relevant for young workers, who face higher unemployment rates and for whom the first job can have lasting career implications. To explore this, our recent study analyzes detailed Spanish administrative data from the Muestra Continua de Vidas Laborales, which tracks individuals’ careers from their first job onward. The study compares the career trajectories of workers who started in cooperatives with those who began in traditional firms, focusing on earnings and job stability.
One striking finding concerns wages. At the start of their careers, there is no significant difference in earnings between the two groups. Over time, however, a gap emerges. After two years in the workforce, cooperative workers begin to earn less than their peers, with the earnings gap reaching 8% after about eight years and persisting over a 15-year span. Importantly, this disparity does not seem to be due to differences in skills or other worker characteristics associated with lower earning potential.
A possible explanation lies in job stability. Workers who start in cooperatives tend to have more stable careers, with fewer job changes, layoffs, or voluntary departures. The lower layoff rate may reflect cooperatives’ strong commitment to job security, even in economic downturns. Meanwhile, the lower rate of voluntary exits could indicate greater job satisfaction. These trends are particularly pronounced among individuals who remain in cooperatives for a longer portion of their careers.
One concern is whether this stability comes at the expense of skill development. To examine this, the study analyzes the relationship between wages and work experience. While cooperative workers experience slower wage growth—likely due to policies that compress wage differences—they are no less likely to receive promotions or take on more complex roles than their counterparts in traditional firms.
Ultimately, the findings suggest that lower earnings in cooperatives may be offset by non-monetary benefits. Workers in cooperatives may place greater value on job security, a supportive work environment, or having a voice in company decisions. This aligns with recent research showing that factors beyond salary play a critical role in shaping workers’ career choices.
© Gabriel Burdin and Jose Garcia-Louzao
Gabriel Burdin is Associate Professor at the University of Siena, Italy, and IZA Research Fellow
Jose Garcia-Louzao is Head of the Applied Macroeconomics Research Division of the Lietuvos Bankas, Lithuania, and Research Fellow at Vilnius University, Lithuania
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We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.
Related IZA World of Labor content:
https://wol.iza.org/articles/does-employee-ownership-improve-performance by Douglas Kruse
https://wol.iza.org/articles/who-owns-the-robots-rules-the-world by Richard B. Freeman
https://wol.iza.org/articles/should-firms-allow-workers-to-choose-their-own-wage by Gary B. Charness
https://wol.iza.org/articles/working-in-family-firms by Thomas Breda
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