Building wealth in the U.S. today is difficult–especially for people of color. Over the last 30 years, adjusted for inflation, the average wealth of white households rose by 33% (buoyed by the fact that almost all of the wealthiest Americans are white), while the average wealth of black families in the U.S. dropped by half. Hispanic and black women earn, on average, just about half of what men do, and face multiple systemic barriers to building wealth.
Income stagnation, which has persisted for the last several decades, certainly plays a role: Workers have seen very little growth to their take-home pay, as top executives’ salaries have ballooned, and companies return dividends to shareholders. The fact that companies are more beholden to shareholders than to employees has been cited as a main driver of pervasive inequality in the U.S.
Employee ownership, according to a new report from the Rutgers Institute for the Study of Employee Ownership and Profit Sharing, could help reverse this trend. The Rutgers teams looked particularly at Employee Stock Ownership Plans. ESOPs, as they’re often called, is the most widespread employee ownership model in the U.S.: There are nearly 7,000 plans, involving nearly 14 million workers. They’re generally simpler to set up than more comprehensive employee ownership models, like worker cooperatives, where all employees collectively own the company and each has a vote in corporate decision-making. ESOPs, by contrast, can be implemented by traditionally structured companies.
To form an ESOP, a company establishes a separate trust that purchases a percentage of its stock and holds it in employees’ retirement accounts. Typically, companies use credit to purchase the stock and subsequently repay the loan. “That’s the key–[employees] don’t have to buy the stock with their savings or retirement, or pay back the loan themselves,” says Rutgers professor Joseph Blasi, who directs the Institute for the Study of Employee Ownership and Profit Sharing. For employers, ESOPs have been linked with higher retention rates and increased worker productivity, which improves the company’s performance overall.