Buying Out the Means of Production: Wages and Productivity in Labor-Managed Firms

Abstract

This paper studies the effect of labor management -- majority employee ownership of a firm -- on firm-level wage distributions and performance. Using matched employer-employee administrative data from Italy, I exploit worker buyouts (WBOs) as sharp transitions from conventional ownership to labor management. I compare WBO firms to observationally similar restructuring firms that remain conventionally owned. Labor management reduces base wages by 9 percent, but increases total compensation once profit-based labor dividends are accounted for. Within-firm wage inequality decreases markedly, and the firm becomes significantly less hierarchical. I find no evidence of lower productivity or reduced investment. Overall, labor management generates substantial within-firm wage compression without reduced operational efficiency.