If codetermination boosts output, will start-ups use it?

Think of codetermination as requiring that say 40% of the board seats be given to workers and broad-based worker representatives (not just founders!), as in the new Elizabeth Warren bill.

Sometimes it is claimed that codetermination would limit capital returns, but boost the firm’s investment in labor, and thus possibly boost productivity.  Let’s say a firm with codetermination would produce 10, and the same venture without codetermination would produce only 8.

If you are initiating a start-up, it seems the codetermined firm is more competitive, plus you still could bargain for some share of the extra 2 in output, albeit a smaller share of the initial 8.

A priori, this could work out as either board form proving more profitable for capital.  Still, if you think of most start-ups as being quite desperate to make it at all, I would think the productivity boost would militate in favor of the codetermination form in at least some cases.  After all, your higher productivity means you will be able to capture the market with lower prices, right?

If you don’t see much voluntary codetermination, one logical conclusion is that codetermination will decrease output.  Will anyone tell me by how much?

Addendum: Here is Ryan Decker: “Interesting thing about the Warren idea is that it mainly applies to large firms. The Vox write-up did not mention the voluminous literature on size-dependent distortions. Also did not mention the literature on the large firm wage premium.”

And Adam Ozimek: “Giving workers board seats may reduce more “fissured economy” stuff at existing big companies, but will probably lead to more of at it tomorrow’s big companies.”


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