ESOPs Address Wealth Inequality, New Study Finds

There is new evidence that ESOPs can be a powerful mechanism for addressing wealth inequality in America. A study released today by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing shows that ESOPs help families significantly increase their assets, thereby shrinking gender and racial wealth gaps.

The Employee Ownership Foundation assisted by helping connect researchers with ESOP companies. The Foundation also encourages academic study of employee ownership by funding Kelso Fellowships; one of the study’s co-authors—Janet Boguslaw—is a Kelso Fellow.

The study is encouraging, but also shows there is more work to be done: While ESOPs are helping to narrow the wealth gap, a gap nonetheless remains.

Greater support of and participation in ESOPs—across all demographics and especially in disadvantaged communities—should help further narrow the wealth divide.

“Low and mid-income employees who have the opportunity to share in the capital built through their labor have greater wealth than their non-employee owner peers. Period.”

–Janet Boguslaw, study co-author

The idea that ESOPs can address wealth inequality—especially for those who are farthest behind, economically speaking—is one that is gathering steam. The Aspen Institute Economic Opportunities Program and the Rockefeller Foundation also are examining how ESOPs can help address this growing concern.

About the Research

The research released today was supported by a grant from the W.K. Kellogg Foundation, and was three years in the making. A Rutgers-led team of 15 researchers from nine colleges and universities nationwide interviewed nearly 200 employees at 21 companies that offer an ESOP retirement account. About half of the employees surveyed are defined as low- or moderate-income, based on their earnings.

The ESOP account gives these employees significant wealth, above and beyond their wages and other income.

Among the findings:

• While the typical American household has $17,000 in savings, the low/moderate-income employees in the study have ESOP account values ranging from $15,000 to $6 million, with a median value of $165,000.

• Of the low/moderate-income employees surveyed, those closest to retirement (ages 60 to 64) have 10 times more wealth than the typical American in that age group.

• Many low/moderate-income employees—especially single women—told researchers the ESOP gives them a sense of economic security and enables them to think about retirement for the first time.

• In ESOP firms with participatory management, workers improved their communication skills and learned open book management, which also enabled them to make better financial decisions at home.

To Boguslaw, the research provides a clear message: “Low and mid-income employees who have the opportunity to share in the capital built through their labor have greater wealth than their non-employee owner peers. Period.”

Study co-author Lisa Schur,said: “Employee ownership can have particular benefits for low-income women and people of color, who are often marginalized at the bottom of workplace organizations.” She added: “Not only can employee ownership lead to economic rewards, but it can also help these workers attain increased voice and skills in the workplace.”

The research should spur greater interest in ESOPs, and provides additional evidence for lawmakers and policy experts to consider when deciding to support employee ownership initiatives.