Allocation and distribution in an employee-owned firm under both output and labor market uncertainty
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Abstract
This paper examines the effects of risk in output and labor markets on membership, employment, layoff and layoff compensation determination in a risk-averse employee-owned firm. Expected incomes of working and furloughed member owners are shown to be equal only when income variances are equal; otherwise the group subject to the higher income variance receives higher mean income. The extent to which average member incomes exceed value marginal product is shown to be related linearly to price variance and risk aversion. Comparative static implications of effects of changes in price and unemployment income means and variances among others, are derived. The results are related to previous theoretical and empirical findings on the labor-managed firm, and found to strongly qualify previous studies.
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