Are Worker-Managed Firms More Likely to Fail Than Conventional Enterprises? Evidence from Uruguay

Abstract

Various theories suggest that worker-managed firms (WMFs) are prone to failure in competitive environments. Using a long panel of Uruguayan firms, the author presents new evidence on firm survival by comparing WMFs with conventional firms. After excluding microenterprises and controlling for differences in the effective tax burden faced by the two types of firms, the hazard of dissolution is 29% lower for WMFs than for conventional firms. This result is robust to alternative estimation strategies based on semiparametric and parametric frailty duration models that take into account unobserved firm-level heterogeneity and impose a range of distributional assumptions about the shape of the baseline hazard. The higher survival rates of worker-managed firms seem to be associated with their greater employment stability. This evidence suggests that the marginal presence of WMFs in actual market economies cannot be explained by the fact that these firms are less likely to survive than conventional firms