Employee Ownership Reduces Wealth Inequality

Key points:

• Employee ownership helps narrow the wealth inequality gap for women and people of color.
• If more opportunities for employee ownership are made available to these groups, the wealth gap might shrink further.

Wealth inequality is a serious and growing concern: Too many individuals living at low- and moderate- income levels find that the path to greater income and financial security is not only steep, but increasingly difficult. This is especially true among women and people of color.

Results released in 2019 from a series of in-depth interviews show that employee ownership helps narrow the wealth inequality gap for everyone, including women and people of color.

The study was funded by the Kellogg Foundation and conducted by the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University. The Employee Ownership Foundation facilitated the research by helping connect researchers to employee owned companies.

The study included interviews with 92 employee owners (all 92 worked for companies with employee stock ownership plans, or ESOPs) who earned less than the 2017 national median income. It found that employee ownership influenced wealth through five factors:

• Building ESOP account equity and financial knowledge.
• Expanding workforce capabilities through on the job training, external education, and internal mentoring.
• Enabling asset preservation and personal investments.
• Increasing access and inclusion by gender, race and ethnicity.
• Improving health and well-being through quality of work life experience and balance.

The downside: An analysis of data from the General Social Survey and funded by the Employee Ownership Foundation shows that employees in the bottom quarter of income distribution are the least likely to be employee owners. In fact, only 7.1 percent of employees from low income families were employee owners, compared to more than 30 percent of employees in the upper quarter of the income distribution.

So, while employee ownership is linked to positive movement in addressing wealth inequality, the fact remains that too few lower-income Americans have access to this wealth building arrangement. In spite of its relatively small circle of influence, employee ownership creates positive results for narrowing the wealth inequality gap. How much more dramatic might this effect might be if more lower-income individuals were able to become owners in the businesses where they work?