Employee voice

Lane Kenworthy, The Good Society
August 2019

Let’s begin with a story.1

“Long ago, when the frontier was still somewhere east of the Great Plains, a young man named J.J. set out to make his fortune. He was bold, adventurous, energetic, and very smart, and he left Boston and New York, and even Pittsburgh and Cincinnati behind him. After hardships and excitements not worth mentioning, he staked out a claim to a large and rich piece of land at the bend of a river, one of the smaller western tributaries of the Mississippi. But J.J. was not a farmer. He hated domestic animals, and while he could plow as straight a furrow as anyone in the West, the accomplishment gave him no joy. Soon, he acquired land on the other side of the river and built a ferry, which he ran himself. It was a well-built and well-run ferry. J.J. was a gregarious man, and he entertained his passengers as he took them across; he was warm and funny and full of stories.

The enterprise was a success, and after a year or so a few men settled nearby, a storekeeper, a blacksmith, even a preacher, renting the land from J.J. He provided a small lot for a small church and happily watched the settlement grow. When word came of a threatened Indian attack, he organized its defense, bringing in (and paying for) vital supplies from the East. There was an attack of sorts, though only by a small raiding party, and J.J. was in the forefront of the defenders — 12 or 15 people now, mostly heads of families, who recognized and accepted him as their leader. He would have been the newest of new men in Boston or New York, but in this little settlement, he was the oldest, the richest, the most well-established of the inhabitants.

About this time, J.J. went East to borrow some money. He now had visions of a city, for the river bend was a good location, the ferry was busy, there were new farms on both sides of the river, and the farmers needed supplies, schools, sermons, and company. He got the money from a young banker who was bold, adventurous, energetic, and very smart. Back home, he bought more land, laid out a square, set aside lots for a school and a town hall. Though no one had yet died in the settlement, he provided a cemetery too, sure that people would die and not unhappy about that. Dead bodies lend dignity to the place where they lie; a town with a cemetery has staying power. He incorporated the town in accordance with territorial law and gave it the name he had always had in mind: J-town. The law did not specify any particular form of government, but J.J. again had something in mind. When the town hall was built (at his own expense), he moved in.

The settlers were not surprised; nor was there any opposition…. Years went by. J.J. prospered, paid off the loan, delighting himself and the Eastern banker. J-town prospered; new settlers arrived every year; there was money in the treasury. When it became necessary to appoint other town officers, J.J. talked to his friends and neighbors and always picked the right person. He had a knack for making decisions, not only decisions that paid off, but ones that pleased people. And if anyone wasn’t pleased, he or she could always move on.

J.J. was a natural leader, a man of substance, a man of power. He proved himself again when the flood came, risking his boats on the rapidly rising river in order to evacuate the settlers and their movable possessions, contributing freely to the relief fund. Later on, he went East for a second time to raise money, signing the papers in his own name and bringing home the capital that made it possible to rebuild J-town. The townspeople could hardly imagine another mayor….

Or so it was until … one day a few of the newer inhabitants called a meeting at the Old Fellow’s Lodge (the town hall had no assembly room). Only a small number of people came, but they shouted a lot, worked one another up, formed a citizen’s committee, and called another meeting. This time more people came; the speeches were exciting, and the participants went home feeling differently about J-town than they had ever felt before. There was a third meeting, and on the following afternoon a delegation of citizens called on J.J.

No one took notes that afternoon, but what was said was repeated all over town. The citizens told the mayor that town government was public business, and henceforth the public would have to be brought into it in some regularized manner. What touches all should be decided by all, they said. They demanded that elections be held, and they intimated that they had a candidate for mayor in mind whom they preferred to J.J.

J.J.’s reply was a passionate defense of entrepreneurial rights. What do you mean?, he said. This is my town. I found this place; I built my ferry here, and other people came because of the ferry. I risked my life against the Indians. I risked my capital to buy this land and raise on it the buildings people needed. Your children are studying, right now, in schools I made possible; your dead are buried on land I gave. When the flood came, I did it all again, giving money, raising money, organizing reconstruction. This town wouldn’t exist without me and, what’s more, I still own most of it. All of you came here with your eyes open; you knew how this town was run; you knew who made the decisions around here. Don’t talk to me about elections.

J.J. had never lacked for words. And everything he said was true. He did not have to make things up, for he was indeed a great man and had done great things. If it were possible to own a town, he certainly deserved to own this one. The citizens insisted, however, that it wasn’t possible. He was entitled to honor and glory, but not to obedience.”

Why should there be a formal mechanism that ensures citizens a voice in decision making? Because, as Michael Walzer’s parable puts it, what touches all should be decided by all. This notion underpins the widely shared view that, in politics, democracy is the fairest system. It encourages us to ask: Why shouldn’t democracy, or at least some formal channel through which people can exercise voice, also apply in the workplace?2

The most prominent forms of employee voice are worker participation, labor unions, works councils, board-level employee representation, and worker control. What do we know about them?

WORKER PARTICIPATION

Employees, either individually or in groups, may be given partial or full decision making authority over aspects of the work process — what the goal should be, how to pursue it, how to allocate time, and more. This takes a variety of forms, from individual jobs with extensive autonomy to suggestion boxes to quality circles to joint safety committees to self-managed work teams. Figure 1 shows that a little more than half of employed Americans report having “a lot of freedom to decide how to do my own work.” One-third say they often “take part with others in making decisions that affect you.” And one-quarter say they’re involved in a “group, team, committee, or task force that addresses issues such as product quality, cost cutting, productivity, health and safety, or other workplace issues.”3 Studies find that such participation tends to boost worker productivity, commitment, and satisfaction.4

Figure 1. Worker participation
Share of US adults employed full-time or part-time. Autonomy question: “I’m going to read you another list of statements about your main job. For each, please tell me if the statement is very true, somewhat true, not too true, or not at all true with respect to the work you do. ‘I am given a lot of freedom to decide how to do my own work.'” The line shows the share responding very true. Make decisions question: “In your job, how often do you take part with others in making decisions that affect you?” Response options: often, sometimes, rarely, never. The line shows the share responding often. Group input question: “Some companies have organized workplace decision making in ways to get more employee input and involvement. Are you personally involved in any group, team, committee, or task force that addresses issues such as product quality, cost cutting, productivity, health and safety, or other workplace issues?” Response options: yes, no. Data source: General Social Survey (GSS), sda.berkeley.edu, series, wkfreedm, wkdecide, empinput.

This kind of participation is, however, a long way from economic democracy. It’s akin to having a benevolent dictator who allows his subjects some control over their local affairs.

LABOR UNIONS

Historically, the chief way in which employees have had a voice in the firms they work for is via labor unions. In the United States and other rich democratic nations, unions arose with the industrial revolution in the mid-1800s. As figure 2 shows, they increased in size and strength through the first several decades of the 20th century. In 1935, the National Labor Relations Act guaranteed the right of workers in private-sector firms to form a union, required firms to negotiate with that union, and ensured protections for workers who go on strike. For the next two decades union membership surged, reaching a peak of 30-34% in the decade from 1945 to 1955.

Since then, unionization has fallen steadily and sharply. Today, only 10% of employed Americans are union members.

Figure 2. Unionization
Share of employees who are union members. Data sources: 1880-1982 are from Richard B. Freeman, “Spurts in Union Growth: Defining Moments and Social Processes,” in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, edited by Michael D. Bordo et al, University of Chicago Press, 1998, table 8A.2. 1983ff are from Bureau of Labor Statistics, data.bls.gov, series LUU0204899600, using Current Population Survey data.

Union membership has tended to be lower in the United States than in most other affluent democracies, as we see in figure 3.

Figure 3. Unionization
Share of employees who are union members. 5-country average: Bel, Den, Fin, Nor, Swe. 15-country average: Asl, Aus, Can, Fr, Ger, Ire, It, Ja, Kor, Nth, NZ, Por, Sp, Swi, UK. The thin lines are for individual countries. Data source: Jelle Visser, “ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention, and Social Pacts,” version 6.0, 2019, Amsterdam Institute for Advanced Labour Studies, series ud, ud_s.

In the 1970s and 1980s, America’s union decline was widely seen as exceptional. But developments in recent decades suggest a different conclusion. As figure 3 makes clear, unionization rates have been falling in most affluent nations. Only five — Belgium, Denmark, Finland, Norway, and Sweden — still have a rate above 35%, and four of those are helped by the fact that access to unemployment insurance hinges on union membership. The average unionization rate in the other 15 countries dropped from 42% in the late 1970s to just 19% as of 2016.

In some countries with moderate unionization rates, such as the Netherlands and Austria, wage bargaining agreements are extended by convention to nonunion sectors and firms. In France this kind of extension is legally mandated. Another alternative is wage setting by a public body; in Australia, tribunals set wages for many occupations. Because of these kinds of compensatory mechanisms, in some nations the share of the work force whose wages are determined by collective bargaining is a good bit larger than the share who are union members, as can be seen in figure 4.

Figure 4. Unionization and wage bargaining coverage
2010-17. Unionization: share of employees who are union members. Wage bargaining coverage: share of employees whose wages are determined by a collective agreement. Data source: Jelle Visser, “ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention, and Social Pacts,” version 6.0, 2019, Amsterdam Institute for Advanced Labour Studies, series ud, ud_s, adjcov. “Asl” is Australia; “Aus” is Austria.

What do unions do? Their principal aim usually is to increase wages, and they frequently achieve this goal. Unionized workers tend to have higher wages, and larger increases in wages, than similarly-skilled nonunionized workers. If we compare across states or countries, wages tend to be higher in those with greater unionization.5

During the period of peak union membership and power, which in many countries was in the 1960s and 1970s, there was a danger that unions might enjoy too much success in increasing wages, resulting in high inflation or high unemployment or both. Coordination of wage setting, via centralized bargaining, extension of wage agreements from unionized to nonunionized firms, or government intervention, tended to encourage moderate wage increases. Wage-setting coordination thereby contributed to healthy macroeconomic performance — low unemployment together with low inflation. Since then, however, with the advent of independent central banks and restrictive monetary policy, coordinated wage bargaining hasn’t been needed to achieve wage restraint.6

Now the tables have turned. Technological advance, globalization, heightened product market competition, the shareholder value revolution in corporate governance, looser labor markets, and other developments have increased firms’ incentive to resist wage increases and enhanced their leverage vis-à-vis workers. In this new economic context, the major challenge facing unions is to ensure that wages increase.

Unions tend to want not only higher pay but also less inequality of pay.7 Across the rich democratic nations, a sizable amount of the cross-country variation in earnings inequality can be explained by the degree of wage bargaining coverage and the degree of wage bargaining centralization, as figure 5 suggests.8

Figure 5. Unions and earnings inequality
Earnings inequality: ratio of earnings at the 90th percentile to earnings at the 10th percentile. Gross earnings of full-time employees. Average over 2000-2017. Data source: OECD. Wage bargaining coverage: share of employees whose wages are determined by a collective agreement. Average over 1960-2017. Data source: Jelle Visser, “ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention, and Social Pacts,” version 6.0, 2019, Amsterdam Institute for Advanced Labour Studies, series adjcov. Wage bargaining centralization: the predominant level at which wage bargaining takes place in terms of coverage. 5 = bargaining predominantly takes place at central or cross-industry level negotiated at lower levels; 4 = intermediate or alternating between central and industry bargaining; 3 = bargaining predominantly takes place at the sector or industry level; 2 = intermediate or alternating between sector and company bargaining; 1 = bargaining predominantly takes place at the local or company level. A level is “predominant” if it accounts for at least two-thirds of the total bargaining coverage rate in a given year. If it accounts for less, but for more than one-third of the coverage rate, there is a mixed or intermediate situation between two levels. A mixed situation also occurs when bargaining levels alternate and/or it is impossible to assess which of the two contributes more to the actual coverage of agreements. Average over 1960-2017. Data source: Visser, “ICTWSS,” version 6.0, 2019, series level-i. The lines are linear regression lines. “Asl” is Australia; “Aus” is Austria.

Much of the rise in income inequality in recent decades consists of separation between the top 1% and everyone else.9 Where unions are sufficiently strong, they can pressure firms to distribute more of the profits to ordinary workers and less to top executives. Unions also can affect top-end income inequality via a political channel, by lobbying policy makers and influencing election outcomes. Several recent quantitative studies that examine developments over the past generation in the United States alone or in the US along with other affluent democracies have found unionization to be one of the better predictors of variation in top-end income inequality.10

Are unions bad for the economy, as a host of critics have asserted over the years?11 They may block the introduction of new technology in an attempt to preserve jobs. High wages might reduce investment by limiting firms’ profits. Unions can reduce the labor market’s effectiveness in allocating workers to firms. They may hinder efficiency in the workplace by limiting managerial discretion. Strikes and work slowdowns reduce production. On the other hand, unions may improve communication among workers and between workers and management, and they may contribute to efforts to boost, rather than impede, productivity.

Figure 6 shows that if we compare across the affluent democratic countries over the past generation, there is no association between unionization levels and economic growth. Figure 7 looks at over-time patterns in the United States. Unionization increased sharply from the late 1800s through the middle of the 1900s, after which it fell equally sharply. If unions are bad for the economy, we would expect to see a decrease in economic growth during the former period and an increase in the latter. Instead, America’s economic growth rate has been relatively constant throughout the past century and a half.

Figure 6. Unions and economic growth
Economic growth: average annual rate of change in real GDP per capita, adjusted for initial level (catch-up). 1979 to 2016. Data source: OECD. Ireland, South Korea, and Norway are outliers and so are omitted. Unionization: union members as a share of all employees. Average over 1979-2016. Data source: Jelle Visser, “ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention, and Social Pacts,” version 6.0, 2019, Amsterdam Institute for Advanced Labour Studies, series ud, ud_s. “Asl” is Australia; “Aus” is Austria. The line is a linear regression line.

Figure 7. Unions and economic growth
Unionization: share of employees who are union members. Data sources: 1880-1982 are from Richard B. Freeman, “Spurts in Union Growth: Defining Moments and Social Processes,” in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, edited by Michael D. Bordo et al, University of Chicago Press, 1998, table 8A.2. 1983ff are from Bureau of Labor Statistics, data.bls.gov, series LUU0204899600, using Current Population Survey data. GDP per capita: natural log of inflation-adjusted GDP per capita. A log scale is used to focus on rates of change. The vertical axis does not begin at zero. The line is a linear regression line; it represents a constant rate of economic growth. Data source: Maddison Project Database 2018, rug.nl/ggdc/historicaldevelopment/maddison.

What are the prospects for a revitalization of unions in the United States? When asked, many workers say they would like to have a union or union-like organization represent them.12 We can point to various aspects of US labor policy that, if changed, seemingly would facilitate an increase in union membership — the 1949 Taft-Hartley Act’s permission for states to implement anti-union “right to work” laws, the lack of a Canadian-style card check procedure for forming a union, weak enforcement of labor laws under Republican administrations, and more. And there is no shortage of proposals for how the American labor movement could organize more effectively.13

Yet optimism about unions’ future in America must reckon with the story told by figure 3 above. In a handful of countries, procedures established nearly a century ago require that workers be a member of a labor union in order to have access to unemployment insurance, and unionization rates there have remained fairly high. In virtually every other rich democratic nation, despite policies and governments far less hostile to unions than in the US, union membership has fallen just as sharply as it has here.14

WORKS COUNCILS

Works councils are employee-elected bodies that negotiate with management over work conditions such as tasks, safety, scheduling, and hiring and firing procedures. They are similar to unions except that they seldom negotiate pay and they are confined to individual firms. In many western European nations, works councils were set up after World War II to promote cooperation between labor and management and forestall communist sympathy among workers. By the 1960s, many had disappeared or fallen into disuse because of opposition by employers and/or unions. In the 1970s and 1980s, however, works councils revived, sometimes due to legal mandate and in some instances voluntarily.15

Works councils’ prominence and rights vary a good bit across the rich democratic countries, as figure 8 suggests.16 A score of 3 on this measure indicates that works councils have economic and social rights, including joint decision making authority on some issues (such as mergers and restructuring). A score of 2 means works councils have economic and social rights via consultation; they are able to give advice to management and can, if needed, request enforcement of rights through the legal system. A score of 1 indicates that works councils have information and consultation rights but little or no ability to use the legal system to ensure enforcement. Countries with a score of zero, such as the US, have few or no works councils.17

Figure 8. Works councils
Rights of works councils. 3 = economic and social rights, including codetermination on some issues (e.g., mergers, take-overs, restructuring); 2 = economic and social rights, consultation (advice, with possibility of judicial redress); 1 = information and consultation rights (without judicial redress); 0 = works council or similar (union or non-union) institutions of employee representation confronting management do not exist or are exceptional. Data source: Jelle Visser, “ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention, and Social Pacts,” version 6.0, 2019, Amsterdam Institute for Advanced Labour Studies, series wc_rights.

Here’s an example of what this means in practice: In the Netherlands, a works council is mandatory in any establishment with 50 or more employees, though in practice they exist in only three-quarters of such establishments. Works councils have extensive information and consultation rights. “They monitor the firm’s implementation of legislation on equal opportunities, health and safety, and other work‐related areas. They enjoy consultation rights on economic and financial matters, and must be informed and consulted in a timely manner. Further, they have codetermination rights over pension insurance, the arrangement of working hours and holidays, health and safety, and rules concerning hiring, firing, promotion, training, and grievance handling. In disagreements over plans for restructuring or redundancies, the employer must postpone their implementation while an amicable solution is sought.”18

Because works councils give workers greater ability to block automation, new forms of work organization, and large-scale layoffs, they might reduce productivity. On the other hand, by providing an ongoing forum in which management and workers must consult and negotiate with one another, works councils may boost information sharing and yield more frequent agreement on strategies for improving firm performance.19 Studies have found little or no systematic tendency for works councils to help or hurt firm productivity.20

BOARD-LEVEL EMPLOYEE REPRESENTATION

Unions and works councils negotiate with management about matters such as wages and working conditions. A stronger form of employee voice would give workers a say in electing the people who make far-reaching decisions about the firm’s direction and about who gets to be the management. The most common way this is done is via “board-level employee representation” (also called “codetermination”), whereby employees elect a portion of their company’s board of directors.

In Germany, workers have been able to elect 50% of the directors in firms with 2,000 or more employees since the early 1950s and 33% of the directors in firms with 500 to 2,000 employees since the mid-1970s. As of the mid-2010s, similar rules existed in Austria, Denmark, Finland, France, Ireland, the Netherlands, Norway, and Sweden. Board-level employee representation is rare or nonexistent in Australia, Belgium, Canada, Italy, Japan, Korea, New Zealand, Portugal, Spain, Switzerland, the UK, and the US.21

Board-level representation tends to have limited reach. About one-quarter of German workers are employed in firms that have it.22 In 2018, Democratic lawmakers in the US proposed the Accountable Capitalism Act, which would require employee election of 40% of the board of directors in large US corporations — those with annual revenues of $1 billion or more. The roughly 1,300 firms that meet this criterion employ approximately 45 million Americans, or about one-third of all workers.23

Critics of board-level employee representation often suggest that it will weaken firms’ performance. However, it appears to have had no such adverse effect in the European countries where large firms operate under codetermination requirements.24

Are there benefits of board-level employee representation apart from its greater fairness for workers? Where only shareholders elect the board, a firm’s management may focus narrowly on increasing the financial return to those owners and hence to maximizing short-run profits. In doing so, the firm may forgo investments and strategies that are beneficial but that pay off only in the intermediate- or long-term. Where employees elect some of the directors, companies may be able to pursue more of a long-term orientation. There is little research on this question. A number of studies conclude that firms in countries such as Germany have tended to have longer time horizons than their American and British counterparts, but this may be a product of long-term-oriented owners rather than employee election of part of the board of directors.25

Board-level employee representation also might boost wages.26 To assess this, it’s helpful to have a country in which labor unions aren’t especially strong but board-level representation is. Germany fits the bill. While German unions and collective bargaining remain powerful in some manufacturing industries, they have weakened considerably in much of the rest of the economy. But board-level employee representation is solidly entrenched. So has Germany had healthy wage growth? No, it hasn’t. In fact, Germany’s record has been similar to that of the US: growth of median compensation has been much slower than growth of the economy, and it has lagged well behind compensation growth in most other affluent democratic countries.27 Germany’s slow wage growth owes partly to its reunification with the former East Germany in 1990 and its intentional creation of a low-wage (“mini-jobs”) segment of the labor market in the early 2000s. Still, its wage performance gives us little cause for optimism about board-level employee representation’s ability to boost wages in a country such as the United States.

WORKER CONTROL

In some companies, employees have full control over decision making, or at least in deciding who gets to be the decision makers. This happens when employees are the owners.

A common form of employee ownership is an “employee share ownership plan” (ESOP). As of the mid-2010s, about 6,500 US companies had such a plan. Approximately 10 million people work in these firms, or about 8% of the American work force.28 In most of these companies, however, the ESOP owns less than half of the stock shares, so the workers have far less than full control. According to one estimate, the number of American workers in a firm where the ESOP has 50% or more ownership is approximately 1 million, and the number in a company with 100% ESOP ownership is about 500,000.29 This is fewer than 1% of employees.

Firms in which workers have full decision making authority because they are majority or sole owners, and which operate on a one person-one vote (rather than one stock share-one vote) basis, are typically called “worker cooperatives.” There are about 400 such firms in the United States, with roughly 7,000 workers. That’s 0.005% of the US labor force, or about one out of every 20,000 employees.30

Although hard data are scarce, it appears that employee share ownership is more prominent in the US and the UK than in other rich democratic nations.31 Cooperatives are uncommon in all of these countries.32

In principle, employees could own a large number of firms collectively. One version of this would gradually transfer stock shares in large companies to a fund controlled by unions or some other worker-elected representative body. Sweden adopted such a scheme (wage-earner funds, or the “Meidner Plan”) in the early 1980s but abandoned it within a decade, and it hasn’t been tried anywhere else.33

People like the idea of employee ownership and control. As we see in figure 9, a 2018 survey found that a healthy majority of Americans would prefer to work for a firm “owned by the employees who appoint the management to run the company’s operations,” rather than one in which outside investors or the government owns the firm and appoints the management. And research on employee share ownership and cooperatives tends to find that, on average, they match other firms on productivity, profitability, and other performance indicators.34

Figure 9. Who should control the company you work for?
Share of US adults. Question: “Which company would you prefer to work for? 1: A company in which the government owns the stock and appoints the management to run the company’s operations. 2: A company whose stock is owned by the employees who appoint the management to run the company’s operations. 3: A company whose stock is owned by outside investors who appoint the management to run the company’s operations.” Data source: General Social Survey (GSS), sda.berkeley.edu, series company.

Why, then, do so few Americans work in employee-owned firms? Limited access to financing may be part of the problem.35 Still, the idea and the practice has been prominent since the late 1800s, and ESOPs have had tax-advantaged status since 1974.36 The small number of majority ESOPs and worker cooperatives suggests that democracy in the workplace may not be a key concern for many people. While many of us value democracy and perhaps agree that it should hold in the workplace no less than in the polity, it doesn’t seem to be high on our priority list.

Even if this is true, it doesn’t follow that we should give up on workplace democracy. Other progressive institutions, including political democracy and the welfare state, were of limited popularity before they became commonplace.

EMPLOYEE VOICE BEYOND THE FIRM

To achieve economic democracy, is it enough for people to have equal voice within the firm for which they work? Governments make a lot of decisions that directly and indirectly affect the economy. Suppose employers and affluent individuals use their financial resources to exert disproportionate influence over government policy making. In this scenario, workplace democracy wouldn’t translate into broader economic democracy.

One way to prevent this is to set up a practice of regularized employee input into government decision making. A number of rich democratic nations have done this. Typically it involves labor union representatives sitting together with employer representatives and government officials to discuss or negotiate over issues of economic and social policy — sometimes a single issue, sometimes the full range of government economic interventions. This institution is called “concertation” or “corporatist concertation.”37

Figure 10 shows one measure of the prominence of concertation in these countries. A score of 2 on this measure indicates regular and frequent involvement of unions and employers in government decisions on social and economic policy. A score of 1 indicates irregular and infrequent involvement. A score of zero means involvement is rare or nonexistent. Austria, Belgium, Denmark, the Netherlands, Norway, Sweden, and Switzerland have had extensive and regularized concertation throughout the past half century, while Canada, France, Japan, the UK, and US have made little or no use of it. Other countries have been in between, and some of them have increased or decreased over time.

Figure 10. Concertation
Routine involvement of unions and employers in government decisions on social and economic policy. 2 = full concertation, regular and frequent involvement; 1 = partial concertation, irregular and infrequent involvement; 0 = no concertation, involvement is rare or absent. Countries’ position indicates their average score during the time period. Data source: Jelle Visser, “ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention, and Social Pacts,” version 6.0, 2019, Amsterdam Institute for Advanced Labour Studies, series ri.

Corporatist concertation improves policy makers’ access to information. It may encourage workers and employers to act in the collective interest rather than selfishly. It might enable quicker and more adaptive responses to economic changes than would come from parliaments. For these reasons, many researchers have hypothesized that concertation will improve national economic performance.38 A generation ago there was some support in the data for this hypothesis, but that no longer seems to be true.39

SUMMARY

The normative case for economic democracy is compelling. In the words of Robert Dahl, “If democracy is justified in governing the state, then it must also be justified in governing economic enterprises.”40

Some employees do have a significant voice in decision making, directly and/or via elected representatives, in the companies for which they work. They participate in groups that have a say in matters such as work tasks, schedules, safety, and others. Labor unions and works councils negotiate with management over pay, work conditions, hiring and firing procedures, and more. Employees elect members of the board of directors, who in turn guide the firm’s orientation and appoint its top managers.

But employee voice varies a good bit. In countries such as Denmark, the Netherlands, Norway, and Sweden, a large share of employees are unionized (or covered by collective bargaining), many firms have works councils, and employees in most large companies elect some of the board of directors. In the United States, only 10% of workers are represented by a union, there are no works councils, and employees don’t get to elect board members.

Moreover, while these forms of employee voice are valuable, none amounts to genuine economic democracy. For that, workers need either the right to elect half (or more) of the board of directors or majority ownership of their firm. Both are, at the moment, quite rare.


  1. Excerpt from Michael Walzer, “Town Meetings and Workers’ Control,” Dissent, 1978. 
  2. Robert A. Dahl, A Preface to Economic Democracy, University of California Press, 1985; David P. Ellerman, The Democratic Worker-Owned Firm, Unwin Hyman, 1990; Robin Archer, “Freedom, Democracy, and Capitalism: Ethics and Employee Participation,” in Oxford Handbook of Participation in Organizations, edited by Adrian Wilkinson, Paul J. Gollan, Mick Marchington, and David Lewin, Oxford University Press, 2010. 
  3. A 2017 survey found that 36-38% of employees feel they have “a lot” of say in how to do their job and in the organization of the work schedule. Thomas A. Kochan, William T. Kimball, Duanyi Yang, and Erin L. Kelly, “Voice Gaps at Work, Options for Closing Them, and Challenges for Future Actions and Research,” ILR Review, 2019. 
  4. David I. Levine and Laura D’Andrea Tyson, “Participation, Productivity, and the Firm’s Environment,” in Paying for Productivity, edited by Alan S. Blinder, Brookings Institution, 1990; Richard B. Freeman and Morris M. Kleiner, “Who Benefits Most from Employee Involvement: Firms or Workers?,” American Economic Review (Papers and Proceedings), 2000; Adrian Wilkinson and Tony Dundon, “Direct Employee Participation,” Oxford Handbook of Participation in Organizations, edited by Adrian Wilkinson, Paul J. Gollan, Mick Marchington, and David Lewin, Oxford University Press, 2010; Duncan Gallie, “Direct Participation and the Quality of Work,” Human Relations, 2013. 
  5. Richard B. Freeman and James L. Medoff, What Do Unions Do?, Basic Books, 1984; Jake Rosenfeld, What Unions No Longer Do, Harvard University Press, 2014; Henry S. Farber, Daniel Herbst, Ilyana Kuziemko, and Suresh Naidu, “Unions and Inequality Over the Twentieth Century: New Evidence from Survey Data,” Working Paper 24587, National Bureau of Economic Research, 2018. 
  6. Lane Kenworthy, In Search of National Economic Success, Sage, 1995, ch. 5; Kenworthy, “Corporatism and Unemployment in the 1980s and 1990s,” American Sociological Review, 2002. 
  7. Freeman and Medoff, What Do Unions Do?; Peter Swenson, Fair Shares: Unions, Pay, and Politics in Sweden and West Germany, Cornell University Press, 1989; David Card, “The Effect of Unions on the Structure of Wages: A Longitudinal Analysis,” Econometrica, 1996; Michael Wallerstein, “Wage-Setting Institutions and Pay Inequality in Advanced Industrial Societies,” American Journal of Political Science, 1999. 
  8. Wallerstein, “Wage-Setting Institutions and Pay Inequality”; David Rueda and Jonas Pontusson, “Wage Inequality and Varieties of Capitalism,” World Politics, 2000; Francine D. Blau and Lawrence M. Kahn, At Home and Abroad: US Labor Market Performance in International Perspective, Russell Sage Foundation, 2002; Dan Devroye and Richard B. Freeman, “Does Inequality in Skills Explain Inequality of Earnings Across Advanced Countries?,” Discussion Paper 0552, Centre for Economic Performance, 2002; David Card, Thomas Lemieux, and W. Craig Riddell, “Unionization and Wage Inequality: A Comparative Study of the US, the UK, and Canada,” Working Paper 9473, National Bureau of Economic Research, 2003; Thomas A. DiPrete, “Labor Markets, Inequality, and Change,” Work and Occupations, 2005; Claudio Lucifora, Abigail McKnight, and Wiemer Salverda, “Low-Wage Employment in Europe: A Review of the Evidence,” Socio-Economic Review, 2005; Sven Oskarsson, “Divergent Trends and Different Causal Logics: The Importance of Bargaining Centralization When Explaining Earnings Inequality across Advanced Democratic Societies,” Politics and Society, 2005; Winfried Koeniger, Marco Leonardi, and Luca Nunziata, “Labor Market Institutions and Wage Inequality,” Industrial and Labor Relations Review, 2007; Lucio Baccaro, “Labour Institutions, Globalization, and Inequality,” International Labour Organization, 2008; Lane Kenworthy, Jobs with Equality, Oxford University Press, 2008; OECD, OECD Employment Outlook 2018, ch. 3. 
  9. Lane Kenworthy, “Income Distribution,” The Good Society. 
  10. Thomas W. Volscho and Nathan J. Kelley, “The Rise of the Super-Rich: Power Resources, Taxes, Financial Markets, and the Dynamics of the Top 1 Percent, 1949 to 2008,” American Sociological Review, 2012; Florence Jaumotte and Carolina Osorio Buitron, “Inequality and Labor Market Institutions,” Staff Discussion Note 15/14, International Monetary Fund, 2015; Evelyne Huber, Jingjing Huo, and John D. Stephens, “Power, Policy, and Top Income Shares,” Socio-Economic Review, 2017. 
  11. Henry C. Simons, Economic Policy for a Free Society, University of Chicago Press, 1948, ch. 6; Friedrich A. Hayek, The Constitution of Liberty, University of Chicago Press, 1960, ch. 18; Milton Friedman and Rose Friedman, Free to Choose, Harcourt Brace Jovanovich, 1979; Barry T. Hirsch, “Firm Investment Behavior and Collective Bargaining Strategy,” in Labor Market Institutions and the Future Role of Unions, edited by M.F. Bognanno and M.M. Kleiner, Blackwell, 1992. 
  12. Richard B. Freeman and Joel Rogers, What Workers Want, ILR Press and Russell Sage Foundation, 1999; Kochan et al, “Voice Gaps at Work, Options for Closing Them, and Challenges for Future Actions and Research.” 
  13. For example: Joel Rogers, “A Strategy for Labor,” Industrial Relations, 1995; Richard D. Kahlenberg and Moshe Z. Marvit, “Why the Right to Form a Union Should Be a Civil Right,” Washington Post, 2012; John Ahlquist and Margaret Levi, In the Interest of Others: Organizations and Social Activism, Princeton University Press, 2013; Harold Meyerson, “The Seeds of a New Labor Movement,” The American Prospect, 2014; Jared Bernstein, “Realistic Ways Policymakers Could Strengthen Collective Bargaining,” Washington Post: Post Everything, 2015. 
  14. Bo Rothstein, “Labor Market Institutions and Working-Class Strength,” in Structuring Politics: Historical Institutionalism in Comparative Analysis, edited by Sven Steinmo, Kathleen Thelen, and Frank Longstreth, Cambridge University Press, 1992; Bruce Western, Between Class and Market: Postwar Unionization in the Capitalist Democracies, Princeton University Press, 1997; Lyle Scruggs “The Ghent System and Union Membership in Europe, 1970-1996,” Political Research Quarterly, 2002; Bruce Western and Jake Rosenfeld, “Workers of the World Divide: The Decline of Labor and the Future of the Middle Class,” Foreign Affairs, 2012; Richard B. Freeman and Kelsey Hilbrich, “Do Labor Unions Have a Future in the United States?,” in The Economics of Inequality, Poverty, and Discrimination in the 21st Century, volume 2, edited by Robert S. Rycroft, Praeger, 2013; Sabina Avdagic and Lucio Baccaro, “The Future of Employment Relations in Advanced Capitalism: Inexorable Decline?,” in Oxford Handbook of Employment Relations, edited by Adrian Wilkinson, Geoffrey Wood, and Richard Deeg, 2014; Adaner Usmani, “The Rise and Fall of Labor,” 2018. 
  15. Joel Rogers and Wolfgang Streeck, eds., Works Councils, University of Chicago Press, 1995; Rebecca Gumbrell‐McCormick and Richard Hyman, “Works Councils: The European Model of Industrial Democracy?,” in Oxford Handbook of Participation in Organizations, edited by Adrian Wilkinson, Paul J. Gollan, Mick Marchington, and David Lewin, Oxford University Press, 2010. 
  16. Since 1996, the European Union has required works councils in firms that have more than 1,000 employees in total and more than 150 in each of two or more EU countries. 
  17. The 1935 National Labor Relations Act forbids nonunion workplace bodies such as works councils in the US. See Bruce E. Kaufman and Daphne G. Taras, “Employee Participation Through Non‐Union Forms of Employee Representation,” in Oxford Handbook of Participation in Organizations, edited by Adrian Wilkinson, Paul J. Gollan, Mick Marchington, and David Lewin, Oxford University Press, 2010. 
  18. Gumbrell‐McCormick and Hyman, “Works Councils,” p. 293. 
  19. Rogers and Streeck, Works Councils. 
  20. Olaf Hübler, “Do Works Councils Raise or Lower Firm Productivity?,” IZA World of Labor, 2015; Uwe Jirjahn and Stephen C. Smith, “Nonunion Employee Representation: Theory and the German Experience with Mandated Works Councils,” Annals of Public and Cooperative Economics, 2018. 
  21. Raymond Markey, Nicola Balnave, and Greg Patmore, “Worker Directors and Worker Ownership/Cooperatives,” in Oxford Handbook of Participation in Organizations, edited by Adrian Wilkinson, Paul J. Gollan, Mick Marchington, and David Lewin, Oxford University Press, 2010; Aline Conchon, Norbert Kluge, and Michael Stollt, “Worker Board-Level Participation in the 31 European Economic Area Countries,” European Trade Union Institute, 2015. 
  22. Sigurt Vitols, personal communication. 
  23. This is an estimate. As of 2015, the 1,000 companies in the “Fortune 1000” had 34 million employees in total, and the firm at the bottom of the list had revenue of $1.8 billion. 
  24. Sigurt Vitols, “Board Level Employee Representation, Executive Remuneration, and Firm Performance in Large European Companies,” Hans Böckler Foundation, 2010; Donato Forcillo, “Codetermination: the Presence of Workers on the Board,” University of Cagliari and Sassari, 2017; Justin Fox, “Why German Corporate Boards Include Workers,” Bloomberg Opinion, August 24, 2018. 
  25. Michael E. Porter, Capital Choices: Changing the Way America Invests in Industry, Council on Competitiveness, 1992; Dominic Barton et al, “Measuring the Economic Impact of Short-Termism,” McKinsey Global Institute, 2017. 
  26. Susan R. Holmberg, “Fighting Short-Termism with Worker Power,” Roosevelt Institute, 2017; Elizabeth Warren, “Companies Shouldn’t Be Accountable Only to Shareholders,” Wall Street Journal, 2018; Matthew Yglesias, “Elizabeth Warren Has a Plan to Save Capitalism,” Vox, 2018. 
  27. Lane Kenworthy, Social Democratic Capitalism, Oxford University Press, 2020, ch. 3. This is true for household income as well. See Kenworthy, “Shared Prosperity: Additional Data,” The Good Society. 
  28. National Center for Employee Ownership, “Employee Ownership by the Numbers,” July 2019. About 20% of adults employed in the private sector own some kind of stock in the firm they work for, according to the General Social Survey (series ownstock). 
  29. Thomas Dudley, “How Big Is America’s Employee-Owned Economy?,” Medium, 2017. 
  30. Democracy Collaborative, “Worker Cooperatives.” 
  31. Eric Kaarsemaker, Andrew Pendleton, and Erik Poutsma, “Employee Share Ownership,” in Oxford Handbook of Participation in Organizations, edited by Adrian Wilkinson, Paul J. Gollan, Mick Marchington, and David Lewin, Oxford University Press, 2010; Joseph R. Blasi, “Tipping the Scale of Employee Ownership,” Morgan Stanley, 2015. 
  32. Luigino Bruni, Dalila De Rosa, and Giovanni Ferri, “Cooperatives and Happiness: Cross-Country Evidence on the Role of Relational Capital,” Journal of Applied Economics, 2019, table 1. 
  33. Jonas Pontusson and Sarosh Kuruvilla, “Swedish Wage-Earner Funds: An Experiment in Economic Democracy,” Industrial and Labor Relations Review, 1992. 
  34. Louis Putterman, “Labour-Managed Firms,” in The New Palgrave Dictionary of Economics, 2009; John Pencavel, “Worker Cooperatives and Democratic Governance,” Discussion Paper 12-003, Stanford Institute for Economic Policy Research, 2012; Joseph R. Blasi, Richard B. Freeman, and Douglas L. Kruse, The Citizen’s Share, Yale University Press, 2013; National Center for Employee Ownership, “Research on Employee Ownership.” 
  35. Jon Elster, “From Here to There; or, If Cooperative Ownership Is So Desirable, Why Are There So Few Cooperatives?,” Social Philosophy and Policy, 1989. 
  36. Blasi, Freeman, and Kruse, The Citizen’s Share. 
  37. Wolfgang Streeck and Lane Kenworthy, “Theories and Practices of Neo-Corporatism,” in The Handbook of Political Sociology, edited by Thomas Janoski, Robert Alford, Alexander Hicks, and Mildred A. Schwartz, Cambridge University Press, 2005. 
  38. John H. Goldthorpe, ed., Order and Conflict in Contemporary Capitalism, Clarendon Press, 1984; Peter J. Katzenstein, Small States in World Markets, Cornell University Press, 1985; Peter Lange and Geoffrey Garrett, “The Politics of Growth,” Journal of Politics, 1985; Harold Wilensky, Rich Democracies, University of California Press, 2002. 
  39. Lane Kenworthy, “Economic Growth,” The Good Society. 
  40. Dahl, A Preface to Economic Democracy, p.111.