Can worker cooperatives stabilize employment and remain financially sound during a prolonged recession?

This paper uses financial accounting data of the universe of Italian worker cooperatives, from 2011 to 2018, to examine whether cooperatives were able to achieve employment stabilization in a period of prolonged recession. Since wages have experienced, in most of the period, a negative growth, we further consider whether wages’ downward flexibility had been sufficient to sustain employment stabilization and whether, under these circumstances, cooperatives’ financial solidity had weakened. Given the non-experimental setting, we proceed by defining a control group of conventional firms to which we compare the group of worker cooperatives. We find evidence that, relative to the control group, during negative demand shocks, worker cooperative contained employment drop and allowed a greater downward wage adjustment. Their profitability and equity ratio also fell by more than in the control group. We find significant-sector heterogeneity, especially in response to positive demand shocks; in Less Knowledge Intensive Services and in Constructions, which together comprise more than 70% of worker cooperatives, it is employment, rather than wages, that rises by more than in conventional firms. This suggests that in the aftermath of a prolonged recession most worker cooperatives chose to favour growth at the expense of members’ wage.