On Success and Dissolution of the Labor-managed Firm in the Capitalist Economy

Abstract

Labor-managed firms (LMFs) in the developed capitalist economy exhibit an interesting life-cycle pattern. Often they come into existence as a way of reorganizing insolvent entrepreneurial (profit-maximizing) firms. Yet successful LMFs tend to be assimilated to the entrepreneurial modus operandi in the long run. I propose a simple theoretical model that explains this LMF phenomenon as the outcome of the LMF's interaction with outside markets, especially competitive spot labor markets. The interpretations and limitations of the model are also discussed as the basic framework is extended to deal with imperfections in capital markets and with contractual labor markets.