This article presents a static and dynamic intertemporal analysis of employment and income distribution in unionized and labor-managed firms. Motivated by theoretical considerations and institutional features of Western trade unions and labor-managed firms, we examine firms in which worker-members share the risk of layoffs by (acting as if) compensating laid-off members. In the static framework we show that, although the firms do not behave perversely, their behavior depends crucially on the initial membership. Since the issue of optimal initial membership has been virtually ignored in the literature, we analyze it next within a dynamic framework.