December 29, 2018



This past summer, for the first time in more than two decades, Congress passed a pro-ESOP piece of legislation. Introduced by Gillibrand in the Senate and Rep. Nydia Velazquez, D-N.Y., in the House, the Main Street Employee Ownership Act makes it easier for small businesses to establish ESOPs and co-ops. It was included in the defense bill that President Donald Trump signed in August. (Another likely 2020 presidential contender, Sen. Elizabeth Warren, D-Mass., introduced legislation this year for a different type of employee ownership. Known as co-determination, it would require companies with revenue over $1 billion to allow workers to elect at least 40 percent of their board of directors.)

Unlike conservatives, who have defended employee ownership on the grounds that it's most certainly not socialism -- indeed, it turns laborers into capitalists -- liberals have taken to ESOPs because they strengthen worker power, boost worker income, and increase corporate transparency. Workers, the arguments goes, care as much about their employment as they do about corporate profitability, so they won't advocate for a strategy that leaves them jobless, even if it is better for the short-term bottom line. "Simply put, when employees have an ownership stake in their company, they will not ship their own jobs to China to increase their profits; they will be more productive, and they will earn a better living," Sanders said last year.

Some progressives have criticized ESOPs, with the argument that they are little more than tax breaks for corporations that don't give workers real ownership of a company or a meaningful say in its management. ESOPs can also create tensions with traditional labor unions, as the latter seeks to organize workers, while ESOPs tend to blur the relationship between workers and owners.

Indeed, not many unionized ESOP companies exist. Some unions -- like the International Brotherhood of Electrical Workers and Steelworkers -- have been open to the idea. Others, "like the [United Automobile Workers], are inherently distrustful," said Loren Rodgers, executive director of the National Center for Employee Ownership, a national nonprofit based in Oakland, California. "In the auto industry, the threat of strikes is really important, and it's harder to get people to strike against something when that might hurt the value of the shares in their retirement account."

MORE THAN 14 MILLION current and former private sector workers have participated in ESOPs, according to the National Center for Employee Ownership. They work in almost every industry, from supermarkets, like the chain Publix, to policy research, like the firm Mathematica. About 7,000 companies today have the retirement plans. Research released earlier this year estimated that the average worker in an ESOP had accumulated $134,000 in retirement wealth from their stake.

Joseph Blasi, an economic sociologist who directs the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University, has long championed ESOPs because he believes they benefit both workers and companies, and are a way to transfer wealth to the middle class. Blasi points to studies showing that workers at ESOP companies tend to earn 5-12 percent more in wages than those at traditionally owned companies, have retirement accounts that are 2.2 percent larger, and are far less likely to be laid off during economic downturns.

Sobering statistics about growing wealth inequality -- like that the top 10 percent of households owns 80 percent of the financial assets, and the top 1 percent owns more wealth than the bottom 95 percent combined -- underscore the need for economists, activists, and policymakers to figure out ways to counteract these trends.

"I've been working on them for over 40 years and only now have ESOPs become cool," said Blasi.

A PAPER PUBLISHED this summer by a young economics researcher in Denmark has reinvigorated interest in ESOPs, as his findings suggest that the financial benefits of the retirement vehicle may be even greater than previously understood.

While this all would have been enormously helpful forty years ago, it now runs up against two trends; the decline of work; and the need for publicly traded stock to fill personal accounts.

Posted by at December 29, 2018 10:07 AM