NCPA - National Center for Policy Analysis

Employee Ownership in America

April 4, 2003

What happens when labor owns businesses, or at least chunks of them? On the surface, employee ownership would seem to solve a host of ills, including getting employees to think like owners and making them more committed to improving quality and to working harder.

Recently, two labor economists from Rutgers University charted the rise of employee ownership in America over the past 20 years. They found:

  • One-fifth of American employees own shares in the companies they work for, with an average holding worth several thousand dollars.
  • In surveys, workers who have been given shares claim to have greater motivation and more identification with their company.
  • But they appear neither to be more satisfied with their jobs nor to work any harder than workers who don't own company stock.
  • Moreover, any good feelings seem to stem more from the status of ownership than from the size of their stakes.
  • They are just as likely to want a trade union as those without shares.

The authors also found that productivity (output per hour worked) rises by 4 percent to 5 percent in the first year that a company creates an ESOP (employee share ownership plan), more than double the average for all American firms. Moreover, ESOP companies continue to enjoy higher productivity growth in later years.

Despite these encouraging signs, there are many risks for employees:

  • Many end up with a large fraction of their net worth invested in their own companies' shares.
  • Firms with ESOPs are, by and large, more likely to offer employees traditional , defined-benefit pension schemes which insulate workers from the vagaries of share-priced movements.

Source: "A Capital Idea," Economist, March 29, 2003.


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