Do successful worker-managed firms degenerate?

The degeneration hypothesis of worker-managed firms (WMFs) asserts that the pursuit of higher earnings would induce successful WMFs to gradually disintegrate their labor-managed economies and become more similar to a conventional firm. Although this issue has been widely discussed, it has rarely been tested empirically. This research presents new econometric evidence on the behavior of WMFs, highlighting the differences within the firm between members and nonmembers. I use a comprehensive linked employee-employer panel data set of workers registered in Uruguay's social security records from 1996 to 2013. The resulting evidence shows that WMFs hire an increasing share of employees. However, the share of employees that the PC chose to hire does not seem to have been effected by variations in the level of success of PCs, suggesting that Uruguayan WMFs do not exhibit this type of degeneration process.