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Is unemployment in Canada really starting to decline?

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The recent fall in unemployment numbers in Canada and the U.S. has been met with optimism that our economic woes are finally starting to heal. However, a good portion of the fall in unemployment is not actually due to people returning to work, but to people abandoning the search for work altogether.

It's well known that the longer people are unemployed, the slimmer their chances of ever getting hired again -- an effect economists call "hysteresis." As the downturn has dragged on -- now into its sixth year -- millions of people have simply given up looking for work and no longer register on the roster of the unemployed. According to recent estimates long-term unemployment is still three times higher than before the recession.i

This is the real and permanent cost of the Great Recession -- millions of people who will never work again. The material deprivations are bad enough, but unemployment also brings severe psychological damage. It causes depression, social exclusion and stunts personal growth.ii

Yet recessions don't need to destroy jobs and ruin lives. The alternative is not a bigger stimulus package or better regulation of Wall Street banks -- though those are important too. We need to restructure our workplaces if we are going to avoid the devastating effects of recession in the future. 

Hidden in small pockets around the world, there are businesses that are more resistant to unemployment than the typical American firm: worker cooperatives. While the co-op sector in the U.S. makes up less than one per cent of firms, it's a bigger player elsewhere.

In Emilia Romagna, a prosperous region in northern Italy, 13 per cent of the regional economy is co-op based. Many of the cooperatives have been around for decades, and many others are industry leaders in construction, agriculture, food processing, wine making, transport, retail and machine production. 

The Mondragon network in the Basque country of northern Spain is the most famous example of a worker co-op. In 1956, five young workers, with the help of a progressive Catholic priest, bought an abandoned stove factory and started producing as a cooperative business.

Today, Mondragon is a giant multinational enterprise with a network of 110 co-ops employing 80,000 people, with assets of €35 billion. Each of these 110 co-ops is an autonomous worker cooperative, meaning that the workers collectively own the firm and elect their Board of Governors on a one-person one-vote basis. In addition, delegates from each firm are elected to represent their co-op at Mondragon's Cooperative Congress, which is like a mini-parliament overseeing the system as a whole. 

One of the most robust empirical facts about co-ops -- and this has confirmed wherever co-ops are studied, from the U.S. to Uruguay to the UK to Sweden -- is that they are better at dealing with downturns than conventional firms.iii Whereas managers in conventional, undemocratic firms react to recessions by firing workers en masse, a cooperative structure allows workers to make shared sacrifices by collectively agreeing to reduce their hours or their pay in a fair and equal manner.

Since workers are their own bosses, layoffs only happen as a very last resort. "Economic rationality with a human face," as one commentator puts it.iv This is why during the Basque recession from the mid-1970s to 1984, the region saw the loss of 100,000 jobs and a 20 per cent unemployment rate, yet, remarkably, not a single Mondragon member lost her job (though some temporary non-member workers did).v While Mondragon is unlikely to escape the current Spanish depression unscathed, the latest data suggests that, once again, it will be responsible for far fewer layoffs than its competitors.vi

The bottom line is that areas with significant numbers of co-ops are likely to suffer far less from recession -- producing far less unemployment and its attendant social and psychological costs. Combined with the fact that worker co-ops have far less wage inequality than conventional firms (managers in large co-ops tend to make about three-times the salary of average workers, while the average American CEO makes 300-times the average worker) it is clear that an economy with a significant number of worker co-ops would be a more humane economy. Here in North America, we desperately need to figure out how to grow Mondragon-like firms of our own.

Tom Malleson is Assistant Professor at King's University College at Western University, and the recent author of After Occupy: Economic Democracy for the 21st Century, published by Oxford University Press.


Photo: flickr/Simon Cunningham

i FRED, "Number of Civilians Unemployed for 27 Weeks and Over," Federal Reserve Bank of St. Louis, http://research.stlouisfed.org/fred2/series/UEMP27OV.

ii Duncan Gallie, "The Quality of Working Life in Welfare Strategy," in Why We Need a New Welfare State, ed. Gøsta Esping‐Andersen (Oxford: Oxford University Press, 2002).

iii Tom Malleson, After Occupy: Economic Democracy for the 21st Century (New York, NY: Oxford University Press, 2014).

iv Roy Morrison, We Build the Road as We Travel (Warner, NH: Essential Book Publishers, 1997).

v A Melissa Moye, "Mondragon: Adapting Co-Operative Structures to Meet the Demands of a Changing Environment," Economic and Industrial Democracy 14, no. 2 (1993).

vi S. Arando et al., "Assessing Mondragon: Stability and Managed Change in the Face of Globalization," William Davidson Institute Working Paper, no. 1003 (2010).   

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