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Employee Ownership, Unemployment Costs and Employment Stability

Posted on April 20, 2017

Author: Garry Karch 

I just finished reading a paper written by Corey Rosen, the founder of the National Center for Employee Ownership in the United States. In the study, done in partnership with the Employee Ownership Foundation, Corey analysed the impact of employee ownership on unemployment rates, the cost to the Federal government and the cost benefit of tax incentives focused on encouraging the adoption of Employee Stock Ownership Plans ("ESOPs"), roughly the equivalent of the Employee Ownership Trust ("EOT") structure here in the UK.

There were several interesting conclusions detailed in the study. First, employee-owners, defined as people who own stock in the companies where they work, are far less likely to lose their jobs than employee non-owners. Using data from the 2015 General Social Survey, a highly respected annual survey performed by a group at the University of Chicago and principally funded by the National Science Foundation, the study showed that in 2014 9.5% of all private sector working adults reported having been laid off in the last year. This compared to 1.3% of private sector working adults who said they owned shares in their company through some form of company sponsored employee ownership plan. The net savings to the Federal government with respect to unemployment costs and foregone taxes were estimated at $17 billion in 2014. The net savings with respect to ESOPs only were estimated at $8 billion. In the recession year of 2010, total net savings to the Federal Government were estimated at $37 billion for all plans and $15 billion for ESOPs alone.

Even if the estimates are high, it is apparent that there are significant net savings to the government as a result of employee ownership. Additional details of the study and data for more years are provided in the full study. The results are consistent going back to the first time the study asked questions about employee ownership in 2002.

The study estimates a total private sector workforce of 118 million employees. The number of employee-owners in the private sector is estimated at 22.9 million, or 19.4% of the total private sector workforce. Of the 22.9 million employee-owners, 11 million (48%) are estimated to be ESOP participants. This equates to 9.3% of the entire private sector workforce. We are nowhere near that level here in the UK, illustrating the upside potential for employee ownership if properly incentivised. The net savings estimated above of $17 billion in 2014 came at an estimated cost of $2.1 billion in ESOP specific tax incentives. In looking at the return on investment, it is obvious that investments in employee ownership tax incentives produce a very significant return. While the systems differ between the US and the UK, the takeaway here is that the employee ownership sector in the UK should not hesitate to push the government for additional EOT incentives. Backed by the data in this and other studies, there is a strong case to be made regarding the value of employee ownership and the tax incentives that encourage accelerated, more widespread adoption of the employee ownership model. For further information on the study, please see:

http://www.nceo.org/assets/pdf/articles/Employee-Ownership-and-Unemployment-2015.pdf

 
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