The Nature and Significance of Productive Efficiency

Firms exist, lest we forget the obvious, to produce goods and services that others value and are willing to pay for. A glance at recent philosophical analyses, however, might suggest otherwise (see Cholbi Reference Cholbi, Zalta and Nodelman2023). One could be forgiven for believing, then, that firms’ purpose is to help workers realize their talents, build ties with colleagues, and gain social recognition for their efforts or, conversely, to help capitalists dominate workers, disrupt communities, and distort democracy. Yet, while these outcomes might reflect much corporate activity, firms primarily exist to build houses and hospitals, facilitate mobility and communication, produce guns and drugs, entertain gamers and cinephiles, insure persons and properties, and feed the hungry and the gourmand. They exist, in brief, to produce goods and services by transforming inputs, including capital and labor, into outputs, typically for profit.

In principle, production could be entirely undertaken through one-off market exchanges between self-employed, independent contractors, rather than through the administrative hierarchy of a firm, where workers are hired and produce under the authority of a boss. But, on the theory of the firm pioneered by Coase (Reference Coase1937) and Williamson (Reference Williamson1975), firms exist precisely because it is often more efficient to produce through their hierarchy, rather than through market exchanges, because doing so economizes on various transaction costs that market exchanges involve. These include the costs of discovering new prices and negotiating and enforcing new contracts every time that supply and demand change and other contingencies of production unfold, as well as the risks of opportunism that one-off exchanges involve. Unlike self-employed contractors, hired workers can be reassigned to new tasks without having to refresh their contracts each time that prices change, customers line up, coworkers call in sick, suppliers fail to deliver, and other contingencies unfold. And unlike independent contractors, who have little reason to invest in skills not transferable across clients, hired workers have reason to invest in skills specific to their employer, with whom their relationship is not one-off but long term, with the expected efficiency gains that firm-specific specialization involves. For example, although job tenure in Europe has declined in recent decades, the average European worker still spends roughly 10 years in their job (Bussolo et al. Reference Bussolo, Capelle, Lokshin, Torre and Winkler2023, 9).

Productive efficiency is, in sum, a constitutive feature of the firm. Conceived as a source of firm performance alongside other factors, such as technology and the environment where production occurs, productive efficiency compares observed and optimal values of output to input, with the optimum defined as the frontier of production possibilities where no alternative commodity bundle is attainable, where no more of any commodity can be produced without producing less of another (Fried, Lovell, and Schmidt Reference Fried, Lovell and Schmidt2008; Sen Reference Sen, Parkin and Nobay1975; Syverson Reference Syverson2011). How efficient a particular firm is hinges, then, on how able it is to turn an input—say, a bundle of raw materials, machines, paperwork, and labor—into an output that is as close as possible to the production frontier by producing, for example, more output from the same input or the same output from less input. As firms are internally organized to approach the frontier, waste is minimized and firm performance, as measured by proxies including labor productivity, profitability, and firm survival, improves.

The emphasis on firms’ internal organization is not idle. Even though productive efficiency hinges on numerous determinants, including many external to the firm, such as geographical and technological determinants, economists largely agree that firm organization decisively affects the impact of such determinants on firm performance and the overall economy (Fried, Lovell, and Schmidt Reference Fried, Lovell and Schmidt2008). For example, Bloom, Sadun, and Van Reenen (Reference Bloom, Sadun and Van Reenen2016) find that roughly one third of productivity variations across firms and countries are explained by variations in management practices, which are in turn decisively affected by variations in market competition and corporate governance (see also Syverson Reference Syverson2011, 336–9). Productive efficiency targets, then, both corporate managers and the norms to which they are held, including governance norms, which are our main concern.

But efficiency in production is not only a constitutive feature of the firm, and a critical determinant of firm performance. It is also a constitutive value. As Abraham Singer (Reference Singer2018, 836–8; Reference Singer2019, 156–8) has argued, if producing through the firm was not more efficient than producing through market exchanges, then there would be no reason to have firms to begin with, as production would then be outsourced to the market, with poorer overall outcomes that stand to harm various stakeholders. These include capital suppliers, who have an interest in getting a return on their investment (Friedman Reference Friedman1970), and members of society, who have an interest in goods and services being produced as efficiently as possible, so that wealth is created and waste minimized—according to some, in exchange for the legal privileges they are often granted, such as limited liability and entity shielding (Claassen Reference Claassen2024). Relevant stakeholders, however, also include workers themselves, who have a nondomination-based interest in the companies they work for being efficiently run, as I will argue.

Constitutive as it might be, however, efficiency is not the only value that firms have reason to honor. Few believe otherwise. For example, Singer (Reference Singer2019, 136) and Claassen (Reference Claassen2024, 330) claim that efficiency in production, albeit a weighty requirement we have reason to hold firms to, is constrained by independent values, including avoiding dominating those subject to their power. Even Milton Friedman (Reference Friedman1970) conceded that companies’ efficiency and profit-seeking are constrained “by the basic rules of the society.” But none of these considers whether efficiency may serve, rather than compete with, such independent values and, in particular, whether it may contribute to protecting workers from domination by their bosses.

Republican and relational egalitarian theories of the firm are better equipped to register workers’ interest in nondomination. Yet they have largely seen efficiency as a constraint, however defeasible, on the reasons to organize firms such that this interest is protected. For example, Elizabeth Anderson (Reference Anderson2017, 69) explicitly rejects workplace democratization on efficiency grounds. Conversely, Richard Dagger (Reference Dagger2006, 162) has argued that a republican economy “will tolerate losses in efficiency when necessary to make work more conducive to self-governing citizenship.” Although Anderson and Dagger differ in how weighty efficiency is, they both assume that efficiency and nondomination are essentially competing values.

The assumption is plausible. While nondomination chiefly serves workers’ interests, efficiency seems not. But it is unsound, I will argue in this section. Efficient production serves workers’ basic interests. It serves their interest, for that matter, in nondomination—so that, over and above its constitutive value, it also has instrumental value thus defined. I am not entirely alone in offering this claim. For example, Harrison Frye (Reference Frye2020) has also argued that nondomination requires economic efficiency. But while Frye focuses on the economy as a whole, I focus on firms in particular and also pinpoint the specific ways efficiency may serve and undermine nondomination—a view first sketched in González-Ricoy and Magaña (Reference González-Ricoy and Magaña2024, 350–1) and that I here develop in more detail after inspecting the nature and weight of workers’ interest in nondomination in the next subsection.

Workers’ Interest in Nondomination

What people care most about their jobs, we often assume, is how well they pay and what benefits they offer. “What the workmen want from their employers beyond anything else is high wages,” Frederick Taylor (Reference Taylor1947, 21) claimed. But the chief determinant of workers’ satisfaction with their jobs, as measured by turnover, is not pay or perks but how their boss treats them (Rubenstein et al. Reference Rubenstein, Eberly, Lee and Mitchell2018). Workers often complain to being dependent on “the good will of their employer,” says one in manufacturing, and to “arbitrary” management decisions, says another in retail (O’Shea Reference O’Shea2019, 1)—complaints whose grounds republican and relational egalitarian political theories have long inspected.

On these views, persons have a basic interest in not being subject to hierarchies that involve domination, which are conceived of as hierarchical relations in which the upper party has a kind of power that is not suitably controlled by those subject to it, such that it is not forced to track their basic interests (Anderson Reference Anderson2017; Arnold Reference Arnold2017; Pettit Reference Pettit1999; Reference Pettit2012; Schuppert Reference Schuppert2015). Securing nondomination requires, then, that the power of the upper party within the hierarchy is suitably controlled. And it also requires that this control be modally robust, holding not just under current circumstances but also under a range of counterfactual circumstances, such that those on the lower end of the power relation are assured that their basic interests will be suitably tracked by those on the upper end if circumstances change.

Things, however, are more complicated. For one thing, defining nondomination in terms of power being suitably forced to track basic interests is no doubt plausible (Arnold Reference Arnold2017; Hsieh Reference Hsieh2006; Pettit Reference Pettit1999). But it is not the only plausible definition (Lovett Reference Lovett2022, 54–63). Democratic and procedural accounts of what counts as suitable control, unlike the substantive account I here draw on, define nondomination with no reference to basic interests, avoiding the thorny issue of having to specify what interests are basic, which requires contentious moral theorizing. I will not attempt such theorizing here. Rather, I will remain agnostic about competing theories of what basic interests are and assume that, on most of the specifications these theories offer, some worker interests can be safely conceived as basic, including interests in workplace safety and fair income and interests in avoiding sexual harassment, taste-based discrimination, and termination without cause.

For another thing, while republicanism and relational egalitarianism overlap significantly, they also diverge in important respects. For what relational egalitarians target is not just an interest in nondomination, but a broader interest that we relate to one another as equals, which may be offended by hierarchies that involve no domination, like hierarchies of esteem (Kolodny Reference Kolodny2023). And what republicans target is a broader interest in nondomination, which may be offended by unsuitably controlled power relations that involve no hierarchy, like relations of mutual domination (Schmidt Reference Schmidt2018). But the two views overlap in that they both target an interest in avoiding hierarchies that involve domination, on which I focus.

For two related reasons, the workplace is particularly prone to hierarchies of this kind (Bowles and Gintis Reference Bowles and Gintis1993, 79–82; Kolodny Reference Kolodny2023, 150ff.; Tsuruda Reference Tsuruda, Jonker and Rozeboom2023, 157–60; González-Ricoy Reference González-Ricoy, Jonker and Rozeboom2025, §1). First, in entering an employment relationship, workers submit, in exchange for a salary, to an employer’s authority—understood here in its de facto, not normative, sense, as the ability to issue commands workers generally conform to. The employment relationship centrally involves, in sum, a hierarchy of authority. Second, the authority employers wield over staff is open-ended. Instead of specifying the terms of the relationship for every possible state of the world, employment contracts are deliberately incomplete, so managers have open-ended authority, as already noted, to redeploy staff as supply and demand fluctuate, machinery falls apart, new tasks need to be completed, and other contingencies unfold. Some have argued that workers under capitalism face structural, not just interpersonal, domination (Roberts Reference Roberts2016; Gourevitch Reference Gourevitch2015; Herranz Reference Herranz2026; for discussion, see Vrousalis Reference Vrousalis2023, ch. 4; Cordelli Reference Cordelli2025). But my point is more modest. Even assuming favorable structural conditions, managers would retain ample discretion to set the material details of the relationship, with no robust assurance, absent further controls, that employees’ basic interests will be tracked over time.

But how concerning is managers’ open-ended authority? The source of the concern cannot be subjection to managerial authority as such. It is plausible to believe that subjection as such prompts a valid concern, given that the reasons that managers’ directives offer to fill this form or mop that floor exclude, and not just undercut, competing reasons for action that workers may have, arguably upsetting their autonomous agency (Schwartz Reference Schwartz1982). But this view implausibly entails that subjection as such to de facto authorities in other realms, from the orchestra rehearsal to the house of worship and the game pitch, likewise upsets the autonomy of those under the authority of an conductor, pastor, or coach—a view anyway rejected by republicans and many relational egalitarians, whose target is not whether some are subject to the authority of others but whether such authority is suitably controlled by those subject to it.

Whether authority in the workplace is suitably forced to track subjects’ basic interests is especially relevant for various reasons (Cholbi Reference Cholbi, Zalta and Nodelman2023, §2.1; Gheaus and Herzog Reference Gheaus and Herzog2016, 74–79; González-Ricoy Reference González-Ricoy2022, 109–12; Hsieh Reference Hsieh2006, 121–7; Kolodny Reference Kolodny2023, 146–50, 152–4). At work is where most spend half of their waking time. It is where they pursue interests like socialization, self-realization, and social contribution and recognition that are hard to realize elsewhere. It is where they are liable to decisions, like those about schedule and compensation, that crucially affect their ability to build and sustain families and friendships off work. And it is also where most are subject to an authority that, unlike that of officials in liberal states, permissibly tells them what ends to pursue and how, where, and with whom to pursue them, rather than merely constraining their own ends—a kind of authority that is also ongoing, rather than one-off, and that is hard to elude, given the costs of exiting the labor market. Nondomination at work is, in brief, a distinctively weighty interest persons have and that, as I next discuss, pursuing efficiency in production may serve and set back.

How Efficiency Serves Nondomination

Having defined their nature and significance, we now turn to how productive efficiency may bear on nondomination, starting in this section with how efficiency may serve workers’ interest in avoiding hierarchies of domination by contributing to suitably constraining employer authority. To undertake this task, we can distinguish consequentialist approaches to this link—on which I mostly focus, given the notion of domination I lean on—from nonconsequentialist ones.

On a consequentialist approach, workers have an interest in their companies being efficiently run because efficiency disciplines managers, and those with control over them, to avoid engaging in two kinds of domination. The first comprises cases where managers have an uncontrolled ability to set back employees’ basic interests with no economic rationale, as is often the case with taste-based discrimination, political mobilization of staff, dismissal without cause, or sexual harassment. Having an uncontrolled ability to set back such interests counts, first and foremost, as an instance of managerial domination. But it may also count as an instance of productive inefficiency. For if such ability is public, it may depress effort, misuse human capital, increase absenteeism and turnover, including turnover contagion, and impose wage premia to attract new staff. Take sexual harassment, for example, which over and above trespassing women’s basic interest in avoiding uninvited requests, costs organizations $22,500 on average per victim in lost productivity alone (Hersch Reference Hersch2024). Surely, some such managerial practices need not always be inefficient.Footnote ¹ For example, taste-based discrimination might be used to cultivate corporate identity, political mobilization might be used to press governments to pass efficiency-promoting laws, and at-will dismissal might make it easier to hire valuable staff, as economists often claim. But, as republicans like Lovett (Reference Lovett2022, 116) claim, they typically involve efficiency costs.

Constraining managers—and those with control over them by, for example, enhancing market competition—to pursue efficiency serves nondomination because it constrains their ability to engage both in those practices that have no possible economic rationale, like sexual harassment, and in those practices that might have an efficiency-enhancing rationale, like taste-based discrimination, when no such rationale exists. Moreover, it serves nondomination not just by constraining this ability, so as to avoid the costs that exercising it may yield, but also by inducing them to enhance workers’ commitment to the firm by suitably tracking their basic interests, so as to reap the efficiency benefits that greater worker commitment may yield, including through a greater willingness to supply effort and reduce shirking, share information and avoid conflict with superiors, invest in firm-specific skills, and other benefits to be later examined.

The second kind of domination involves cases in which incompetent, yet not necessarily abusive, managers have an uncontrolled ability to harm firm performance as a result of their incompetence, which under market competition may compel firms to reduce workers’ pay and benefits, ask them to work unpaid overtime, undercut their safety conditions, and ultimately dismiss them, leaving many financially dependent on and prone to be dominated by relatives, friends, or state agencies. Take work-life balance, for example, which economists find to be poorer the worse managed and less productive firms are (Bloom, Kretschmer, and Van Reenen Reference Bloom, Kretschmer, Van Reenen, Freeman and Shaw2009). Workers have an interest in their companies being efficiently run, then, to discipline nonabusive yet poor management, and those who can appoint and dismiss them, not to have the ability to undermine firm performance as a result of their incompetence, thereby creating the conditions under which market competition with competing companies may compel them to trespass workers’ basic interests regarding working time, job security, safety, and pay.

Some may object that, insofar as market competition is what ultimately compels incompetent managers to assign unpaid overtime, cut employees’ salaries, or dismiss them to avoid their firms going under, no managerial domination really exists. Perhaps such managers are as dominated as workers are, or perhaps none is really dominated, interpersonally anyway, for if domination requires having discretionary, uncontrolled power over someone, then managers in these cases have little discretion over how to deploy their authority over workers (Lovett Reference Lovett2022, 113–4; Pettit Reference Pettit2006, 142). They are just trying to prevent their company from going belly up.

But this objection, though serious in general, as I will discuss in the next section, misses the mark in this particular case. Incompetent bosses in these cases might ultimately be compelled by market competition not to track workers’ basic interests. But they do so under conditions over which they, and those who appoint and can terminate them, have control—conditions that are therefore partly created as a result of their unsuitably-checked incompetent power. Thus, partly because their managerial power is unsuitably checked, bosses and those who appoint and can fire them are able not to discharge their prospective duties, to borrow Chiara Cordelli’s (Reference Cordelli2018) notion, to create the conditions under which market competition does not compel them to set back workers’ basic interests. They are fitting candidates, therefore, to be reproached for that neglect, which in turn stems from the unsuitably checked power they wield. Insofar as pursuing efficiency can constrain such power, including managers’ ability to exercise it incompetently and employers’ ability to appoint and keep incompetent managers, productive efficiency can force employers and managers to track workers’ basic interests.

Nonconsequentialist approaches do not lean on the benefits, in terms of disciplining employers and managers to suitably track workers’ basic interests, that productive efficiency may bring about. Instead, they lean on how an efficient organization of production may instantiate the standing of bosses and employees as equals, offering independent insight on the link between efficiency and unobjectionable hierarchy. On Niko Kolodny’s (Reference Kolodny2023, 89–90, 131–4) view, for example, objectionable hierarchies are only possible between natural persons, and certain conditions keep our subjection to a superior authority from turning into subjection to the superior authority of another natural person. One such condition is that asymmetries of authority, like those a professorship or priesthood involves, are offices justified by impersonal reasons (Impersonal Justification). Another is that officials occupying those offices, like the particular professor or priest, exercise their authority with no more discretion than serves those impersonal reasons (Least Discretion).

In the workplace, Kolodny (Reference Kolodny2023, 151) argues, the impersonal reasons that justify the office of boss are those that favor efficient production, which is why firms exist, as noted. When bosses’ authority over staff is deployed with no more discretion than serves those impersonal reasons, so Least Discretion is satisfied, Kolodny argues, subjection to such authority is no longer subjection to the natural person occupying the office, but to the office itself, and no objectionable hierarchy therefore exists. Productive efficiency serves relational equality, on this view, by constraining managers not to deploy their discretion in ways that, as in the earlier cases of abusive and of nonabusive yet incompetent management, turn subjection to the office of boss, which prompts no complaint, into subjection to the natural person occupying that office, which does.

How Efficiency Fails to Serve or Undermines Nondomination

Pursuing productive efficiency, over and above its constitutive value, also has instrumental value. It may serve workers’ interest in avoiding hierarchies that involve domination in the ways just discussed. Yet, pursuing efficiency may also fail to serve this interest in various ways. First, it may fail to control employers’ discretion. Second, it may control it yet unsuitably so.Footnote ²

Start with cases in which pursuing efficiency fails to control employers’ authority over employees. When employers face options that are equivalent from the standpoint of efficiency, because they are as close to the efficiency frontier, but not from the standpoint of workers’ basic interests, because some options track such interests, whereas some others do not, then pursuing efficiency no longer disciplines managers to avoid dominating their staff because it no longer constrains managers’ discretion to choose among either kind of options. To illustrate, consider the thorny choice between pay cuts and dismissals during recessions. Assuming both options are equally efficient, they are often not equivalent insofar as pay cuts could avoid failing to track workers’ interest in job security. For example, Davis and Krolikowski (Reference Davis and Krolikowski2023, 16–8) find that, although firms often choose dismissals over pay cuts, most dismissed workers would prefer a 5–10% pay cut. For such workers, and surely for some retained others who may be averse enough to the risk of dismissal, their basic interest in job security is not suitably tracked when managers are constrained to pursue efficiency because efficiency does not constrain their discretion to choose among the two options. Productive efficiency serves, in brief, as an underdetermined benchmark for ranking equally efficient options when some such options track workers’ basic interests, whereas others do not.

Second, and most obviously, pursuing efficiency may sometimes control corporate managers yet unsuitably so. It may surely control them by constraining their discretion over employees, yet in ways that fail to track their interests or outright encroach them. To be sure, in seeking to bring their companies closer to the efficiency frontier, corporate managers may sometimes be constrained to deploy their authority over workers, such that output is optimized relative to input, in ways that, in addition to those discussed in the previous section, encroach no basic interest. High-performance practices and workforce planning to avoid overstaffing are probably a case in point. Often, however, seeking efficiency will discipline managers to further corporate policies that do encroach basic interests, assigning disproportionate workload, restricting breaks, and cutting down on pay. In these cases, pursuing efficiency in production does not fail to control employers’ discretion over staff, as in the first case. It controls their discretion yet in ways that require setting back, rather than tracking, workers’ basic interests as a means to optimize input relative to output, notably including the reduction of labor costs, typically the lion’s share of companies’ production costs.

And even if pursuing efficiency constrained companies to optimize production in ways that avoided economizing on labor costs at workers’ expense because, say, happier workers work harder, stay longer in the company, and invest more in firm-specific human capital, this decision would be counterfactually weak. For it would not necessarily hold as changes in market conditions, firm ownership, and so on unfold. You do well by doing good to your workers, as the corporate motto says, until you no longer do. This is problematic because, to recall, nondomination is a modally demanding value. It is only secured when those giving orders are suitably controlled to track the basic interests of those taking orders under both present and a range of counterfactual circumstances. The mere possibility that firms may change their policies on pay and safety, for example, with no suitable control, entails domination, whether they actually change them or not.

Unlike in the ways in which efficiency may serve nondomination, as discussed in the previous subsection, pursuing productive efficiency may, in sum, fail to serve or outright set back workers’ interest in nondomination.

Labor-Managed Firms and Efficiency

Labor-managed firms in all the mentioned variants have long been seen as comparatively inefficient. Their prevalence is low, economists have often argued, because they are less efficient and accordingly less productive, profitable, and likely to survive than conventional firms. To mention some influential hypotheses, economists have argued that labor-managed firms use less labor than conventional firms to concentrate profits among fewer workers (Ward Reference Ward1958); that they encourage shirking due to the difficulty of monitoring individual productivity in teamwork (Alchian and Demsetz Reference Alchian and Demsetz1972); that they make defective and shortsighted investment decisions because workers favor investments that pay off during their expected tenure (Jensen and Meckling Reference Jensen and Meckling1979); and that they incur higher transaction costs, like those of democratic decision making among heterogeneous workers, whose attitudes toward job security, hours, or income, are more heterogeneous than those of capital suppliers (Hansmann Reference Hansmann1996). The influence of these views has been sizable on not just economic analyses but normative ones too, prompting reluctance about workplace democracy in numerous political theorists, including Anderson (Reference Anderson2017, 69), Singer (Reference Singer2018, 837), and Frye (Reference Frye2020, 578).

But the empirical evidence complicates this pessimistic outlook. Reviewing the econometric studies on codetermination, especially those that inspect its causal effects by using natural experiments and large datasets on individual workers and firms, Jäger, Noy, and Schoefer (Reference Jäger, Noy and Schoefer2022, 867) find on average “zero or even slightly positive (statistically insignificant) effects on productivity, capital intensity, firm survival, labor productivity, revenue, and profitability” (see also Conchon Reference Conchon2011; Kim, Maug, and Schneider Reference Kim, Maug and Schneider2019). Evidence on worker cooperatives is less conclusive, in part, because of self-selection issues. Cooperative firms may self-select into certain industries where they have better prospects, for example, and cooperatives likely differ in unobserved ways from conventional firms. But existing results, albeit inconclusive, question their purported inefficiency. Drawing on large samples of American, French, and Uruguayan cooperatives, empirical studies find them to be on average as productive and as likely to survive as conventional firms, sometimes more (Burdín Reference Burdín2014; Craig and Pencavel Reference Craig and Pencavel1992; Fakhfakh, Pérotin, and Gago Reference Fakhfakh, Pérotin and Gago2012; Young-Hyman, Magne, and Kruse Reference Young-Hyman, Magne and Kruse2022; for reviews, see Pérotin Reference Pérotin, Webster, Shaw and Vorberg-Rugh2016 and Dow Reference Dow2018, chs. 6–8). A meta-analysis of empirical studies on employee ownership, including worker cooperatives, that comprises 102 samples covering 56,984 firms reinforces this more qualified view. It finds a significant positive association between employee ownership and firm performance, with no differences by firm size (Boyle, Patel, and Gonzalez-Mulé Reference Boyle, Patel and Gonzalez-Mulé2016; see also Freeman, Blasi, and Kruse Reference Freeman, Blasi and Kruse2010; Kruse Reference Kruse2022).

This is not to dismiss all earlier hypotheses. Some, like Ward’s (Reference Ward1958) and Alchian and Demsetz’s (Reference Alchian and Demsetz1972), have largely been discarded (see Dow Reference Dow2018, 121–4). But others have not. For example, Hansmann’s (Reference Hansmann1996) argument that workers’ self-governance creates nontrivial decision-making costs remains persuasive and may explain why, in successful labor-managed firms, worker participation is indirect and delegation to managers is extensive. Indeed, as Burdín (Reference Burdín2014, 226) and Dow (Reference Dow2003, ch. 9) avouch, labor-managed firms could exhibit some inefficiencies, including higher decision-making costs, that other efficiency advantages, as discussed next, could outweigh.

Labor-managed firms, and employee-owned and cooperative firms in particular, are rare, the above studies suggest, not because they are inefficient in turning input into output. “[T]he way worker cooperatives organise production is more efficient,” Pérotin (Reference Pérotin, Webster, Shaw and Vorberg-Rugh2016, 18) even claims in a review of the literature. They are rare because starting them is often hard, especially given their limited access to capital from external investors, who would have limited control over their governance, the less diversified financial risk borne by workers, who often have to invest their personal savings in them, and the inalienability of labor compared to capital (Dow Reference Dow2018, 119–27; Podivinsky and Stewart Reference Podivinsky and Stewart2007, 189–90). It is not surprising, then, that employee-owned and cooperative firms are typically created at higher rates in services than in capital-intensive and high-risk industries, like manufacturing (Pérotin Reference Pérotin, Webster, Shaw and Vorberg-Rugh2016, 11–15; Podivinsky and Stewart Reference Podivinsky and Stewart2007, 187–9). Once started, however, the above studies suggest that they are on average as productive, profitable, and likely to survive as conventional firms, sometimes more. For example, firms that switched from capital-controlled to labor-managed governance in knowledge-intensive industries in France had an average 8.9% productivity boost (Young-Hyman, Magne, and Kruse Reference Young-Hyman, Magne and Kruse2022), and worker cooperatives in Uruguay had a 29% lower dissolution risk than conventional firms (Burdín Reference Burdín2014).

These efficiency benefits—which, to repeat, may coexist with inefficiencies like those Hansmann (Reference Hansmann1996) suggests—are not unrelated to how labor-managed firms are forced to track workers’ interests. Although the models and empirics of the causal mechanisms underpinning labor-managed firms’ efficiency effects are still underdeveloped, the earlier studies agree that these effects significantly stem from workers’ greater commitment to the firm—even if some of these findings may be affected by self-selection, insofar as more committed workers, or those who especially prize having control rights, may self-select into working in labor-managed firms. If workers are assured that corporate policies will track their basic interests under current and changing circumstances because they have suitable control over such policies and, in employee-owned and cooperative firms, also share in the firm’s ownership and profits, they have reason to be particularly committed to the firm (Bowles and Gintis Reference Bowles and Gintis1993; Dow Reference Dow2018; Freeman, Blasi, and Kruse Reference Freeman, Blasi and Kruse2010; Kruse Reference Kruse2022; Weber, Unterrainer, and Höge Reference Weber, Unterrainer and Höge2020). For example, a study of 40,000 workers at 323 U.S. employee-owned workplaces found that workers were significantly more likely to report that “co-workers work hard” and that they personally “are willing to work harder to help the company” (Freeman, Blasi, and Kruse Reference Freeman, Blasi and Kruse2010, 17). Similarly, a review of 60 empirical studies found that worker participation in organizational decision making is the best predictor of worker involvement and motivation (Weber, Unterrainer, and Höge Reference Weber, Unterrainer and Höge2020, 1029–36). As a result of improved commitment, these studies suggest, workers are more willing to supply effort and avoid shirking, avoid conflict and share information about potential innovations with managers, invest in firm-specific skills, accept temporary pay and hours cuts during recessions, and monitor each other with lower supervision costs, with predictable efficiency gains.Footnote ³

To illustrate, consider one of the most established findings about labor-managed firms: their response to recessions by destroying fewer jobs than capital-controlled firms, which results from greater worker control over governance, better communication with management, and more willingness to reduce pay and hours to avoid dismissals (Dow Reference Dow2018, 104–5; Kruse Reference Kruse2022, 5–6; Jäger, Noy, and Schoefer Reference Jäger, Noy and Schoefer2022, 865–6). Worker control induces greater commitment to the firm, a study of German codetermined establishments for the period 1990–2008 finds, because, when it gives workers sufficient control, it operates as an insurance mechanism against the risk of dismissal (Kim, Maug, and Schneider Reference Kim, Maug and Schneider2019). Insured from decisions that may neglect their basic interest in job security, workers have weightier reason to supply effort with less supervision needed, invest in firm-specific skills, share private information with managers, and so on, with predictable efficiency benefits.

In sum, however influential, the view that labor-managed firms are inefficient is too quick. The empirical record, albeit inconclusive, suggests a more nuanced picture. Inefficiencies may exist in some contexts, but they are neither uniform across industries nor overwhelming, and may be cancelled out by efficiency benefits stemming from workers’ higher commitment.

Labor-Managed Firms and Nondomination

Labor-managed firms are not chiefly valuable for their efficiency effects. Although not less efficient than conventional firms, they are not much more efficient either, as the evidence earlier suggests. What sets them aside, I will now argue in conditional form, is that if they bestow workers with sufficient control over governance—as worker cooperatives but not codetermined firms do—then they can shelter workers from domination while preserving efficiency more robustly than conventional firms, inviting a response to the two concerns that pursuing efficiency raises, as discussed in the previous section. For, then, workers have control over, first, which corporate policies to adopt when these are indifferent from an efficiency standpoint, such that management is forced to track workers’ basic interests as they rank them, and, second, which corporate policies to adopt when efficiency and nondomination prompt competing claims, and not just presently but also across a robust range of counterfactual circumstances. If labor-managed firms give workers sufficient control rights, I submit, then they can swiftly adapt to the unforeseeable contingencies of production while forcing managers to track workers’ basic interests across a range of circumstances as a result not of managers’ goodwill but of their accountability to those under their thumb.

The conditional formulation of the earlier claims is motivated by the empirical evidence on how suitably different variants of labor-managed firm are forced to track workers’ interests, which is assuring regarding cooperative and employee-owned companies yet more sobering regarding codetermination. For example, in a study of 82 U.S. worker cooperatives, workers report better pay, more job security, and higher job satisfaction (Schlachter and Prushinskaya Reference Schlachter and Prushinskaya2024, 14–20; see also Jenkins and Chivers Reference Jenkins and Chivers2022). Similarly, a study of 323 American employee-owned firms involving 40,000 workers finds that employee ownership is positively associated with higher pay and benefits, greater job security, better management treatment, and higher job satisfaction (Freeman, Blasi, and Kruse Reference Freeman, Blasi and Kruse2010, 19–22; see also Kruse Reference Kruse2022).

Two important caveats apply, though. One is that employee owners’ higher job satisfaction, which is often taken as a proxy of how suitably workers’ interests are tracked, significantly depends on low supervision, high performance work practices, and, most relevantly for present purposes, worker participation in corporate decisions. Worker owners may otherwise be less satisfied due to unfulfilled desires for greater participation (Freeman, Blasi, and Kruse Reference Freeman, Blasi and Kruse2010, ch. 8; Weber, Unterrainer, and Höge Reference Weber, Unterrainer and Höge2020, 1038–9). Another caveat is that what matters from the standpoint of nondomination is not whether corporate managers track workers’ basic interests, but whether they are forced to track them, and not just presently but across counterfactual circumstances. So, while the positive impact of cooperative and employee-owned firms on how workers’ basic interests are tracked may suggest that workers in such firms are less dominated, at least if this impact stems from mechanisms that give workers control over such decisions, it cannot conclusively establish it.

By contrast, the more moderate or inexistent impact of codetermination on how firms track workers’ basic interests does reliably suggest that managers in codetermined firms are not suitably forced to track such interests, making little difference in terms of sheltering workers from domination. To start, while there is ample evidence that worker cooperatives suitably track workers’ interests in job security (Craig and Pencavel Reference Craig and Pencavel1992; Cristini, Grasseni, and Signori Reference Cristini, Grasseni and Signori2023; Fakhfakh, Pérotin, and Gago Reference Fakhfakh, Pérotin and Gago2012), the effects of codetermination on job security are more sobering, for they depend on workers’ share of control rights. For example, in the abovementioned study of German codetermined establishments, Kim, Maug, and Schneider (Reference Kim, Maug and Schneider2019, 1267) find that while companies with 50% board-level employee representation destroyed no jobs during recessions, tracking workers’ interest in job security, those with one-third employee representation destroyed as many jobs as conventional firms. But even with half-board worker representation, other studies find that codetermination has no significant positive effects on other measures of worker interest fulfillment, such as voluntary separations (a revealed-preference catch-all proxy for worker satisfaction) and rent-sharing, and only modest effects on subjective job satisfaction (Jäger, Noy, and Schoefer Reference Jäger, Noy and Schoefer2022, 865–6; see also Blandhol et al. Reference Blandhol, Mogstad, Nilsson and Vestad2020). Although the reasons are manifold (see Jäger, Noy, and Schoefer Reference Jäger, Noy and Schoefer2022, 874–7), one prominent explanation is that, under existing forms of codetermination, workers’ share of ultimate control rights over board decisions relative to capital suppliers’ control rights is insufficient. Capital suppliers retain a significantly larger share of board representatives in virtually all existing forms of codetermination and even in those with 50% employee representation, as in German companies with over 2,000 employees, capital suppliers retain a tie-breaking vote. “Codetermination laws convey relatively little authority to workers,” Jäger, Noy, and Schoefer (Reference Jäger, Noy and Schoefer2022, 874) argue to explain the limited incidence of codetermination—a view that a board employee representative in the Finnish shipbuilding industry similarly conveys: “When you have money and power, you make the final decisions. It’s good to keep that in mind” (cf. Gold, Kuge, and Conchon Reference Gold, Kluge and Conchon2010, 35).

In sum, while the empirical evidence, despite methodological limitations, suggests that all variants of labor-managed firm fare well relative to their investor-controlled counterparts in terms of their productive efficiency, only those in which workers have a sufficient share of ultimate control rights, as in worker cooperatives, fare better than investor-controlled firms in terms of forcing managers to track workers’ basic interests. It is unsurprising, then, that relational egalitarian and republican advocates of labor-managed firms often favor worker cooperatives (Gourevitch Reference Gourevitch2015, 179–81), and that those who favor codetermination favor variants where workers would have majority board control (Schemmel Reference Schemmel2024, 956).

Do Labor-Managed Firms Dominate Their Workers?

A widespread concern, which republicans like Taylor (Reference Taylor2019), Vrousalis (Reference Vrousalis2023), and Frye (Reference Frye2024) have flagged, is that labor-managed firms, even if they may fare better overall than their capital-controlled counterparts, as the evidence just discussed suggests, may nonetheless fail to eradicate workplace domination or introduce new forms of it. These concerns are often uncritically dismissed or attributed to mere organizational degeneration. But they are serious, and so I now map the forms of workplace domination that various external and internal sources may generate and inspect the mechanisms whereby labor-managed firms may minimize—albeit not eradicate, I contend—each.Footnote ⁴

Start with the external sources, which may notably include economic recessions and market-induced competition.Footnote ⁵ Sometimes, these sources are entirely structural, stemming from no particular agent with uncontrolled power. For example, the mere possibility that future recessions or competition with rival companies may put labor-managed firms at risk of bankruptcy may constrain them to make decisions that seemingly fail to track basic interests, including assigning unpaid overtime to their members or cutting down on safety measures. These cases, however, would involve no domination, on the interpersonal understanding endorsed here anyway, insofar as managers adopting such policies, from the corner office to the shop floor, were suitably controlled by their staff and constrained by entirely anonymous market imperatives.

Other times, however, such sources are not wholly structural. Market competition may induce labor-managed firms to assign unpaid overtime or cut down on safety standards to shelter themselves from the possibility of going under in response not merely to anonymous sources, like future recessions and market competition, but also to particular agents with uncontrolled power, like managers in competing capital-managed firms with discretion to adopt policies of that kind. When this happens, market competition may induce labor-managed firms to adopt comparable policies, resulting in forms of domination by capital-controlled firms’ managers whose target comprises both their workers and, as a by-product of market competition, workers in labor-managed firms.

Two mechanisms may mitigate this source, however. One is that labor-managed firms’ efficiency gains—through higher motivation, improved information flows, lower supervision costs, as discussed—may render mimicking the earlier policies needless to avoid going bust, at least to the point at which such gains are enough to cancel out competitors’ efficiency gains stemming from their bosses having an uncontrolled ability to enact such policies. Another is that, even above that cancelling-out point, workers in labor-managed firms would retain control over how exactly their company is to respond to the possibility that managers in competing companies adopt policies of that sort, and over whether to adopt alternative efficiency-enhancing policies that could avoid having to assign unpaid overtime or to economize on safety measures. However, insofar as that possibility can indirectly constrain workers’ control over workplace policies, a residue of indirect domination by unsuitably controlled managers at competing firms would remain—a residue that workers’ control rights may mitigate yet not entirely root out.

Internal sources of domination are perhaps more unsettling. Consider two such sources. One is the possibility that workers in labor-managed firms, taken as a whole, dominate themselves, especially given that labor-managed firms’ efficiency benefits stem, as noted, from their higher willingness to work hard, avoid shirking, invest in firm-specific human capital, and so on. The source of such willingness is no doubt partly external, because it is induced by the possibility that rivals may outcompete them. But it can also be partly internal, insofar as it stems from workers’ higher commitment due to market-independent reasons, such as contributing to the communities where labor-managed firms operate, developing their personal talents, gaining social recognition for their goods and services, and simply witnessing the company they run and perhaps started succeed. If workers in such companies could choose to cut down on safety measures or assign unpaid overtime due to the latter kind of reasons and with no further control, then maybe they dominate themselves. But the very idea of self-domination is incoherent, and not just because domination requires, on the standard definition used here, lacking control over power, which workers in suitably controlled labor-managed firms possess, but also because, as Vrousalis (Reference Vrousalis2023, 134–5) reckons, domination is a relation between at least two parties to begin with.

A second source is more plausible—to wit, that a subset of workers, rather than workers as a whole, dominates another subset, whether vertically or horizontally. Vertical domination obtains when managers have an uncontrolled ability to abuse their authority despite them being formally appointed by and accountable to nonmanagerial workers. This may happen due to organizational degeneration, such that leadership is entrenched and accountability mechanisms become ineffective (Bijman, Hanisch, and van der Sangen Reference Bijman, Hanisch and van der Sangen2014; Kasmir Reference Kasmir1996), but also absent degeneration. Given that managerial authority is as open-ended in labor-managed firms as it is in conventional ones, workers can control but not completely control how it is deployed over them (González-Ricoy Reference González-Ricoy2014, 251; Frye Reference Frye2024, 382–6). Moreover, while workers have direct control over the top management, which they can hire and fire, they only have indirect control over middle and line managers, whose authority they can more easily abuse (Ternier Reference Ternier2025). Some have advocated that managerial authority be less open-ended, as we will discuss in the next section (Jacob and Neuhäuser Reference Jacob and Neuhäuser2018), and others that middle and line managers be directly accountable to nonmanagerial staff (Ternier Reference Ternier2025). But both proposals have serious efficiency costs, for they would constrain managers’ ability to swiftly react to contingencies and also increase decision-making costs.

Three mechanisms to mitigate, albeit not entirely root out, vertical domination are more promising. One comprises egalitarian norms, which are crucial for nondomination (Pettit Reference Pettit2012, 175–89) and distinctive of labor-managed firms’ corporate culture (Ben-Ner and Jones Reference Ben-Ner and Jones1995; Cheney Reference Cheney2002). Another is accountability: the disciplining effects that accountability to workers and channels to challenge and vote down decisions, whether direct or indirect and however imperfect, inevitably entails (Pettit Reference Pettit2012, ch. 5). A third is deliberation. By requesting public reason-giving, labor-managed firms make discriminatory or self-serving managerial decisions harder to justify and easier to contest (Ben-Ner and Jones Reference Ben-Ner and Jones1995; Cheney Reference Cheney2002; Ferreras Reference Ferreras2017).

Horizontal domination, for its part, obtains when a subset of nonmanagerial workers has uncontrolled power over another subset (Lovett Reference Lovett2022, 118–9; Taylor Reference Taylor2019, 271–3). Again, this may happen due to organizational degeneration, especially when some workers are denied control rights, as is often the case in worker cooperatives that hire workers who lack membership. But it may also happen absent degeneration. If nondomination requires not being subject to an uncontrolled power, then those subject to democratic rule, in labor-managed firms as much as in any other democratic organization, are necessarily dominated (Kolodny Reference Kolodny2023, 278; Schemmel Reference Schemmel2024, 13)—a concern that is sensible given the many divides in labor-managed firms’ workforce composition, including entry-level versus senior-level, white-collar versus blue-collar, frontline versus support, remote versus on-site, and male versus female workers. “What would prevent … a majority,” Taylor (Reference Taylor2019, 272) asks of worker cooperatives, “from discriminating in hiring, promotion, firing, and so forth, on such grounds as race, gender, or national origin?”

Various distinctive mechanisms may mitigate horizontal domination, albeit not eradicate it, calling for complementary checks and balances to be discussed in the next section. One is equal power. Unlike capital-controlled companies, where voting rights are allocated according to ownership, with some investors having majority control, voting rights in labor-managed firms are allocated according to membership, so each member has one vote regardless of their equity contribution, limiting entrenched majorities. Another is diversity. While majorities are possible in labor-managed firms, they are surely more diverse and fragmented than in conventional firms, where capital suppliers more homogenously converge around the unifying aim of profit maximization (Hansmann Reference Hansmann1996; Pek Reference Pek2023). This explains why workers often have little power in codetermined firms—not just because they have minority board representation, but also because they have more heterogeneous interests and are less able to form entrenched coalitions than capital investors (Blandhol et al. Reference Blandhol, Mogstad, Nilsson and Vestad2020; Gold, Kluge, and Conchon Reference Gold, Kluge and Conchon2010; Jäger, Noy, and Schoefer Reference Jäger, Noy and Schoefer2022; Kim, Maug, and Schneider Reference Kim, Maug and Schneider2019). A third mechanism is deliberation, which applies horizontally as much as vertically, promoting cross-group understanding and limiting the formation of stable majority blocks (Ben-Ner and Jones Reference Ben-Ner and Jones1995; Cheney Reference Cheney2002; Pek Reference Pek2023).

Concerns about external and internal sources of domination in labor-managed firms may, in sum, be mitigated by various of their distinctive features. But they cannot be entirely answered and are therefore serious. They are less so, however, once we relax the assumption that eradicating workplace domination, rather than minimizing it, is the relevant normative benchmark. Some republicans believe that eradication follows democratization. When a legislative authority “emanates from … conditions of equality,” Bellamy (Reference Bellamy2007, 160) claims, “it will not dominate.” But this response might be cold comfort for the individual worker whose basic interests managers or majority coworkers are not suitably forced to track. A better response is that minimizing, rather than eradicating, net domination relative to plausible alternatives is what democracy does (Lovett Reference Lovett2022, 84–6). Given the empirical evidence reviewed previously and the mechanisms just discussed, we have reason to believe that suitably controlled labor-managed firms do better than conventional firms in terms of minimizing domination while upholding efficiency. But do they also do better than alternative responses?

Self-Employment

Self-employment is often seen as the most suitable response to workplace domination because it eradicates its cause. Workplace democracy cannot entirely root out workplace domination, as argued, because it leaves untouched managers’ open-ended authority and allows majority workers to partly dominate minority coworkers (Lovett Reference Lovett2022, 118–9). Self-employment, by contrast, avoids these forms of domination by eradicating the managerial authority that characterizes firms, including labor-controlled firms. Those who worry about workplace domination often agree with this verdict (Anderson Reference Anderson2017, 64; González-Ricoy Reference González-Ricoy2014, 252–3). If they hesitate to rally for universal self-employment, it is on efficiency grounds, given the transaction costs of producing through market exchanges and the forgone benefits of renouncing to exploit economies of scale self-employment entails. “The abolition of the employment relationship itself and its replacement by self-employment,” Bowles and Gintis (Reference Bowles and Gintis1993, 85) argue, “is prohibitively costly, except in those lines of work not characterized by economies of large-scale production.” Indeed, in a review of the empirical literature, Van Praag and Versloot (Reference Van Praag and Versloot2007, 356–72) conclude that self-employed businesses contribute less to aggregate productivity, innovate less, and destroy more jobs than larger companies.

But the assumption that self-employment, though inefficient, eradicates domination is misguided. First, in concentrated markets, the self-employed may depend on one or a few suppliers or purchasers, who may then be able to use their unconstrained market power to dictate how and when the self-employed work. Second, even without market concentration, competition may pressure self-employed businesses to mirror the conditions that unsuitably constrained bosses in rival companies set. A study of 2,347 Finnish self-employed workers found that market imperatives compelled them to start their workday, allocate hours, and take breaks much like employees (Hyytinen and Ruuskanen Reference Hyytinen and Ruuskanen2007). If bosses in rival companies have unconstrained power to reduce safety measures or toilet breaks, then market competition may induce self-employed workers to act similarly, resulting in managerial domination of such companies’ employees directly and of the self-employed indirectly (González-Ricoy Reference González-Ricoy, Jonker and Rozeboom2023, 88–9). Third, because the self-employed often earn less and face higher risks of joblessness than wageworkers (Blanchflower Reference Blanchflower2004, 18–25; Van Praag and Versloot Reference Van Praag and Versloot2007, 372–6), they are more vulnerable to domination by family members and public institutions they may depend on financially. Finally, self-employment weakens the kind of collective interaction and organization that republicans see as necessary to counter domination, not just in workplaces but across society. Self-employment poorly serves, in short, both efficiency and nondomination.

Enhanced Exit Rights

A second candidate response comprises labor market policies to enhance workers’ power to exit potentially abusive employers by switching jobs (Lovett Reference Lovett2022, 112–9; Pettit Reference Pettit2006, 142; Taylor Reference Taylor2019). Antitrust policies, bans on noncompetes, retraining programs, better information about job alternatives, and a universal basic income may shelter workers from potentially abusive employers. They do by reducing the costs of changing jobs, which serves two purposes (Birnbaum and De Wispelaere Reference Birnbaum and De Wispelaere2021). One is effective exit, so workers can quit potentially abusive bosses. Another is strategic exit. If the threat of quitting is credible, effective quitting may be needless, as employers may be constrained enough to track workers’ basic interests to avoid losing or failing to attract valuable staff and incurring further recruitment costs.

To be sure, enhanced exit options are a crucial ingredient of a suitable response to workplace domination. Unlike workplace democracy, which offers workers collective control over managerial authority, enhanced exit rights offer them individual control, such that each worker can bargain the terms of employment according to their personal interests as the relationship unfolds. Where some might seek a raise, others might seek remote work for caregiving. This response is also flexible and nonintrusive, allowing quick adaptation to changing personal and economic circumstances without shop-floor or board-level employee representation. No wonder some see strategic exit as a form of voice. “Silence can sometimes speak as loudly as words,” Taylor (Reference Taylor2017, 15) claims. Moreover, labor mobility and competition among firms to attract workers can also enhance efficiency by reallocating human capital, letting workers switch to industries and firms where their skills are most valued and productive.

But are exit options better suited for minimizing workplace domination while preserving efficiency than an alternative that also includes workers’ voice over companies’ governance? Two reasons suggest not. First, labor markets are rarely perfectly competitive and complete. Structural unemployment and information asymmetries may raise switching costs enough to make quitting insufficiently credible (Lovett Reference Lovett2022, 113–4; Tsuruda Reference Tsuruda, Jonker and Rozeboom2023, 159–60). Second, even in complete and fully clearing labor markets, searching and transition costs, ties with customers and colleagues, and quasi-rents stemming from seniority may still trap workers (Breen Reference Breen2015, 477; Hsieh Reference Hsieh2006, 127–34). But this second reason is weaker. If workers endure purportedly dominating bosses just to avoid the hassle of switching jobs or renouncing workplace friendships and seniority benefits, then the interests at stake may not be basic. If the case for worker control as a complement to enhanced exit options is to be grounded on the costs of resorting to such options, then those costs better be morally weighty, as with long-term unemployment in imperfect markets are.

Another, less explored reason is that enhanced exit, while improving the allocation of workers, may also undermine the reasons for workers and firms to invest in relationship-specific goods. These include workers’ reasons to invest in firm-specific human capital and firms’ reasons to invest in workers’ general human capital, both of which are lost if workers quit or are dismissed. They also include workers’ reasons to invest in broader long-term goods specific to their relationship with the firm and colleagues. If workers can easily switch jobs, what deters opportunistic behavior toward their firm or colleagues? Reputational reasons and sheer decency may constrain such behavior. But given the long-term nature of the employment relationship, a response that systematically discourages investing in the long-term goods that this relationship requires is flawed on both efficiency and nondomination grounds. An ideal setup would enhance workers’ exit options, so they could resort to effective and strategic exit, while also giving firms and workers reason to invest in long-term goods specific to the relationship, economic and otherwise. Labor-managed firms—which, as noted, significantly reduce voluntary and involuntary separations, fostering workers’ commitment and firms’ flexibility to adapt to economic downturns—offer just this (see Dow Reference Dow2018, ch. 15).

Unionization

The third alternative is unionization, which republican theories often see as a collective variant of strategic exit because both aim to force employers to track employees’ basic interests through the threat of withdrawing labor—whether permanently by quitting in the case of strategic exit or temporarily by striking in the case of unionization. Workers lean on unions and the right to strike, Gourevitch (Reference Gourevitch2016) claims, to counteract managerial domination through their collective ability to withhold labor without forfeiting their job. Moreover, unionization partially aligns with worker control over governance, which may falter without unions’ technical and organizational resources. Otherwise, management may exploit workers’ disorganization and lack of expertise to neglect their interests in shaping corporate policies (González-Ricoy Reference González-Ricoy2014, 250; Reiff Reference Reiff2020, 123). As L.A.B., a major Basque union, said of Mondragon cooperatives, “The absence of syndicates in the cooperatives has negative repercussions for workers. Workers lack an organizational form, and the directors of the cooperatives take advantage of this fact by making substantial changes in working conditions” (Kasmir Reference Kasmir1996, 190).

What is unclear, however, is whether unionization can replace, rather than complement, worker control over governance, given their distinct roles in promoting efficiency and nondomination. Start with efficiency, which unions may enhance through lower turnover from improved pay and personnel policies, allowing firms to retain experienced human capital and reduce recruitment and training costs, and by pressuring management to invest in skills, as Freeman and Medoff’s (Reference Freeman and Medoff1984, ch. 11) landmark study argued. Subsequent research, however, finds substantial variation across workplaces but near-zero net productivity effects of unions on average (Hirsch Reference Hirsch, Bennett and Kaufman2007, 204–11). But even where unions do enhance productive efficiency, they do so differently from worker control over governance. For unions’ adversarial attitude toward management is unlikely to yield the efficiency benefits that characterize labor-managed firms, including those stemming from workers’ higher job satisfaction and greater willingness to work hard, avoid conflict with managers, accept temporary pay cuts during recessions, and monitor one another, as discussed in the previous section. Indeed, workers are on average less satisfied in unionized workplaces—possibly due to workers’ preference for less adversarial workplaces, Hammer and Avgar (Reference Hammer, Avgar, Bennett and Kaufman2007, 364) argue in a review of the literature.

Unions also differ from labor-managed firms in how they address workplace domination. One difference is their scope. While unions primarily target corporate policies that directly impact workers’ basic interests—such as working conditions and pay, with well-established positive effects on wages and fringe benefits (see Bryson Reference Bryson2014, 3–5; Reiff Reference Reiff2020, 111–4)—worker control over governance extends to all corporate policies, including those, such as mergers and tax strategies, with more indirect but nonetheless profound effects on workers. Another difference is their function. While unions primarily aim to constrain or oversee corporate policies made by others—to wit, capital investors and their appointed board members—worker control over governance aims to determine those corporate policies themselves. Unions, in sum, are crucial for protecting workers from domination, and offer some efficiency benefits. But they cannot substitute for control over governance because their scope and function simply differ.

Workplace Constitutionalism

The fourth candidate response is workplace regulation—or “workplace constitutionalism,” as it is sometimes called—which some believe suffices, alongside enhanced exit options, to avoid managerial domination (Dagger Reference Dagger2006, 162; Jacob and Neuhäuser Reference Jacob and Neuhäuser2018, 935–6). This response leans on employment contracts’ incompleteness. Instead of attempting to specify the terms of the relationship for every contingency, employment contracts, as noted in the first section, give employers broad discretion to redeploy workers as contingencies unfold, which employers can exert in ways that fail to track workers’ basic interests. The workplace constitutionalist response seeks to reduce this threat by legally constraining employers’ discretion through labor rights, for-cause dismissal rules, health and safety standards, antidiscrimination law, and professional and craft norms. These are no doubt crucial means to mitigate managerial domination. No partisan of labor-managed firms claims otherwise. But are they enough, absent workers’ direct control rights over governance? And are they desirable if aimed to sharply limit employer discretion by, for example, requiring job descriptions to precisely specify what employees may be asked to do, as Jacob and Neuhäuser (Reference Jacob and Neuhäuser2018, 935) suggest?

One concern is that comprehensive legal constraints, enforced by courts, may sometimes be difficult or prohibitive (González-Ricoy Reference González-Ricoy2022, 112; Gourevitch Reference Gourevitch2015, 179–81). First, in a changing economy where production has to quickly adapt to supply chain disruptions, an aging workforce, and automation technologies, regulators may often lag behind. Climate policy is illustrative, with companies often taking the lead due to regulatory inaction. Second, enforcing existing regulations by courts, including distinguishing legitimate from abusive uses of managerial discretion, is often hard. It is not just that predicting every possible misuse of authority would be impractical, expensive for workers to contest, and hard for courts to regulate. It is also that regulatory checks may prevent some but not all abuses, given the complexity of production and the incomplete nature of employment contracts, unless managerial discretion is removed altogether.

Another concern is that workplace regulation, if pursued comprehensively, may not be desirable, if minimizing domination while serving efficiency is the relevant benchmark. Take Jacob and Neuhäuser’s (Reference Jacob and Neuhäuser2018, 935) suggestion that employment contracts precisely specify what employees could be asked to do. One drawback is that this would seriously hamper managers’ ability to flexibly adapt to changing circumstances. For this flexibility is just what leads firms to produce, as argued, more efficiently than market transactions between independent contractors do (Lovett Reference Lovett2022, 118; Singer Reference Singer2018). Highly specified employment contracts would render employer authority drastically less open-ended, inducing firms to resort to the market and reducing overall efficiency. Another drawback is that such contracts could also yield, on balance, more rather than less domination, for regulatory agents would then need ampler powers to monitor and enforce noncompliance—powers that could be readily abused (Taylor Reference Taylor2017, 22).

We have reason to request, in sum, that regulatory constraints be paired with workers’ control rights over governance, allowing bosses to retain open-ended authority to adapt to changing circumstances on the fly while being suitably controlled by those under their authority.