The face of global economic inequality has changed greatly since the 1970s. Up until the early 2010s, the most common way to conceive of disparities in income was by referring to countries as “developing” and “developed,” or “low-income” and “high-income.” However, this binary distinction has largely turned obsolete in the past decade. Nowadays, although clear cross-national differences do undoubtedly persist, the most dramatic gaps in income exist not so much between countries as they do within states. Despite the phenomenal technological and economic progress achieved transnationally, not everyone has been able to reap the benefits of that progress equally.
Parallel to the worldwide evolution of the very nature of economic inequality was a shift in the corporate world that prompted commentators to refer to the 2010s as a “golden age of employee ownership.” A rise in the number of businesses totally or significantly belonging to their employees, through direct individual share ownership, indirect employee ownership trusts, or a combination of both, amounted to 17.2 percent in 2017 and 18.5 percent in 2018 in the United Kingdom (UK) alone. More than 60 percent of the total company conversions to employee ownership in Britain happened in the past seven years. About half of United States (U.S.) workers currently have a stake in businesses through employee shares, company stock, or profit-sharing, which includes 20 percent of private-sector workers having some form of ownership in the companies employing them. Although data availability on employee-owned businesses outside the UK and the U.S. is limited, such corporate giants as Danone in Southeast Asia, Huawei in China, and Mondragon in Spain are opening up to or are already fully embracing the idea of employee ownership.
Aside from being an increasingly widespread business model trend, employee ownership is an area of rare and overwhelming partisan consensus in the U.S. In a 2019 General Social Survey (GSS), 72 percent of Republicans and 74 percent of Democrats said they prefer working for an employee-owned company over one that is owned by investors or the government. Distinguished Professor Joseph Blasi (Rutgers University), who designed GSS questions in collaboration with Professor Richard Freeman (Harvard University), elaborates on the remarkable convergence of opinions on employee ownership: “Democrat or Republican, female or male, black or white, union or non-union, a majority of respondents said they prefer to work for a company with employee share ownership. It is rare to find such a national consensus on anything.” Some unambiguous benefits must be at play here for one business model of moderate prominence to invoke such broad popular support.
There are, indeed, advantages commonly associated with employee ownership. According to the National Center for Employee Ownership based in Oakland, California, employee-owned companies lay off fewer workers, experience higher rates of growth, and pay higher wages than their conventionally owned peers. Researchers from the City University of Hong Kong and Villanova University, Pennsylvania, find that employee ownership had a small but significant impact on overall firm performance of over 1,500 European companies in 2006-2014.
Empirically proven productivity and performance advantages aside, many expect employee ownership to bring benefits beyond the economic realm. From its earliest stages, a transfer of a company’s shares to its workers is oftentimes motivated by ethical concerns. Mark Constantine, co-founder and CEO of Lush, a natural cosmetics shop, cited his worry that his business can be taken over by a firm that does not share Lush’s values when commenting on his decision to consider an employee ownership model, which Lush ended up adopting. Julian Richer, founder of home electronics retail Richer Sounds, admitted that his motivation to transfer ownership to the company’s workers was “one of morality.” Ethical arguments in favor of employee ownership are not groundless: the first-ever study on the impact of employee ownership on lower- and moderate-income workers. conducted in March 2019 by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing, the study’s findings suggested that this ownership model has the potential to significantly narrow racial and gender income gaps in the future.
This brings us back to the discussion of global intra-country income inequality: Can employee ownership move beyond making founders of companies feel good about themselves after the noble deed of transferring their shares to workers? Is it within the capacities of this ownership model to provide a solution to wealth disparity? Empirical evidence on this front is mixed. The Rutgers Institute finds that, while employee ownership does generally help improve family economic stability and financial security, most of the workers who own a stake in their companies are male and high-income. Nevertheless, workers of color who do participate in employee ownership stock plans (ESOP) in the U.S. tend to do far better financially than the national average--American Latinx ESOP employees, for example, are 12 times more wealthy than the median Latinx employee. Meanwhile, staggering income gaps persist among white and black women participating in ESOPs, whose wealth on average amounts to $225,000 and $55,000, respectively. These figures demonstrate that employee ownership does not seem to be a panacea for income inequality, and its success in closing the wealth gap has so far remained mixed – at least in the U.S.
A growing body of scholarship has focused on describing and explaining unequal returns from employee ownership programs. Edward J. Carberry of the University of Massachusetts Boston used the results of a survey involving over 40,000 employees in fourteen U.S. companies to show that women and African Americans benefit less from profit sharing and gainsharing employee ownership generates, compared to their male and white counterparts. This is consistent with existing patterns of occupational segregation, work devaluation, and discrimination. Since groups with lower levels of discretionary income, such as women and racial or ethnic minorities, have fewer opportunities to invest in ESOPs, they will benefit less from such plans. What is more striking, however, is the finding by Carberry suggesting that, on average, women receive less value from all types of ESOPs than men, even when controlling for occupation, education, and income differences. This suggests a worrisome propensity of employee ownership to further magnify unequal wealth distribution – the exact opposite of what its enthusiastic supporters expect it to do.
Considering this evidence, policymakers should be more cautious about granting unconditional support to expanded employee ownership across all industries. In light of Carberry’s findings, predictions about the growing popularity of ESOPs hardly resemble promises of an inevitable triumph of inclusivity and fairness in the corporate world. Policymakers’ confidence in the ability of ESOPs to eradicate existing structural impediments to economic equality should not be blindly unquestioning. It is true, as the Rutgers Institute’s study demonstrates, that the average worker in an employee-owned company is financially better off than the average worker in a conventionally owned company. However, evidence shows that ESOPs are not the holistic vehicles of social justice that some commentators portray them to be. Instead, ESOPs replicate, with alarming similarity, patterns of nation-wide unequal wealth distribution among men and women, white workers and workers of color, and other demographic groups. Before further government support is offered to companies wishing to transform themselves into employee-owned enterprises, policymakers need more convincing evidence of the capacity of this ownership model to produce meaningful redistributive outcomes.
Therefore, when it comes to income inequality mitigation and the creation of organizational cultures of fairness, employee ownership follows the same stratification patterns as conventional ownership models. Instead of creating a qualitatively different system of equal access to economic opportunity, evidence indicates that this model can actually reproduce dissimilar wealth distribution outcomes among different demographic groups. Despite its undeniable benefits, such as improved worker motivation and preserved founding values of companies, employee ownership as it stands today is not a cure for income disparities caused by gender, racial, or ethnic dimensions. With the topic becoming more and more salient as a growing number of firms choose to offer their workers a share in the business, more attention should be diverted to examining whether this business model can do more harm than good by exacerbating--instead of eliminating--the existing economic disadvantages that women and minorities face.