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Economics of participation is an umbrella term spanning the economic analysis of worker cooperatives, labor-managed firms, profit sharing, gain sharing, employee ownership, employee stock ownership plans, works councils, codetermination, and other mechanisms which employees use to participate in their firm's decision making and financial results.
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A historical analysis of worker participation traces its development from informal profit sharing in U.S. factories, to flexible remuneration in the aftermath of Industrial Revolution and to staff democracy's application for earning stability in economic downturns during the 21st Century.
The economic analysis of these participatory tools reveals their benefits and limitations for individuals, businesses and the wider economy. As a result of worker participation, employees gain skills, morale and motivation that improve business output, productivity and profitability. Spill-on effects into the wider economy can anchor human and financial capital in domestic industries, which have the potential to increase aggregate demand. However, negative implications of staff democracy encompass the free-rider effect and volatile incomes, which may reduce morale and motivation at an organisational level. Further, the long-run success of worker democracy is economically equivocal, and may prove an Pareto inefficient use of economic resources.