Talking Points

The Missing Program: Employee Ownership

Harvard economist Richard Freeman recently pointed out that, between 1980 and 2017, real wages rose 14% while returns to the S&P 500 went up 543%. That’s almost a 40X difference. By contrast, Freeman added, the differential was less than two to one between 1945 and 1980.

In other words, owning stock pays a whole lot better than working for a living. And yet the richest tenth of American households currently own 84 percent of all US-owned stock, including shares held in 401(k)s and pension funds. About half of Americans own no stock at all.

In addition, the gains in productivity since World War II outstripped the gains in wage growth by more than 100 percentage points (chart). Until about 1973, the two figures moved almost in lockstep–so the big divergence occurred in the past 45 years.

What can be done about disparities like these? Every so often a columnist or pundit will offer a list of reforms to address the problems of stagnant wages and the skewed distribution of income. A good example is this New York Times column by David Leonhardt. “A Time for Big Economic Ideas” was the headline, and the recommended policies included such interesting ideas as a federal jobs program and expanding Medicare.

But why not address the fundamental issue of capital ownership? The trouble with capitalism, as someone once said, is that there are too few capitalists. Any time you see a list of economic reforms, ask yourself: do they propose broadening the ownership of capital, as ESOPs do?