Equilibrium unemployment as a worker insurance device: Worker insurance and wage setting in worker owned enterprises

Shapiro and Stiglitz model on efficiency wages shows that worker owned firms perform higher levels of wage and employment than in investor owner firms, but empirical evidence doesn’t support the first result. Starting by the economic literature on workers cooperatives we extend the Shapiro and Stiglitz’s analysis by introducing horizontal control among worker members and employer opportunism. Our results reconcile theory and empirical record showing how in cooperatives both unemployment and wages can be lower than in investor owned companies.