Money in the Bank for Low-to-Moderate-Income Employees

Imagine peering into a couple of dozen ESOP companies to learn how workers with low and moderate incomes are faring—and hearing about what ownership means to them.

That’s essentially what a team of Rutgers researchers did over the past few years, and their findings are remarkable.

For example, the low-to-moderate-income workers in the study have ESOP accounts ranging from $15,000 to $6 million. Sure, the latter figure is an outlier—probably a longtime employee of a highly successful business. But the median employee in this group had $165,000 in his/her ESOP account. By contrast, the study notes, the typical American household has just $17,000 in savings.

Employees closest to retirement—ages 60 to 64—were also doing well. As a group, they had ten times more wealth than the average American in that age group.

The study, supported by the W. K. Kellogg Foundation, was carried out by Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing. Joseph Blasi and Douglas Kruse led the investigation; Janet Boguslaw and Lisa Schur wrote the report.

The researchers identified 21 ESOP companies in 16 states with low-to-moderate-income workers, particularly women and people of color. They conducted interviews with 195 employee owners, including 92 who earned less than the 2017 national household median of $61,372. About three-quarters of this group had been with their company for at least 15 years.

ESOP participation narrowed but didn’t eliminate gender and racial wealth gaps among these lower-income workers. For example, African-American men had a median ESOP account value of $180,000, compared to $323,500 for white men. The proportional gap for women was larger still.

Still, ownership seemed to have had a substantial effect. The ESOP “changed my life,” said a woman in her fifties who worked as a heavy-equipment operator. “And, it’s a really big help because sometimes we, the employees, can’t save for retirement or save money in general because they can’t afford to. So the company helps us to be able to save up our money. It’s like winning the lottery.”

An African-American man with a high school education said, “When I started here I didn’t have much at all. I guess you can call it, I was a poor man. By today’s standards. I think I’m pretty well off right now, considering. I’ve come a long way. And ESOP has done good by me.” He had $180,000 in his ESOP account, the median for his demographic group.

Some people borrowed against their ESOP account for medical bills, college, and the like. A white woman in her fifties said this:

My company was here for me and for others when there were hard times. Like when my mother was sick and I had to go to the hospital a lot and had some big extra expenses, they made me a small no-interest loan, and then it got paid back out of my paycheck. That really helped my family keep from going in debt with credit cards and all that. And, I borrowed from my account to help my daughter with college, so still paying back into that.

This woman was earning $22 an hour. She had $266,000 in her ESOP account.

The research involved a relatively small group of people, and the companies involved were not a representative sample of ESOP firms. (They were chosen because they had a pool of veteran low-to-moderate-income workers.) “This was a proof of concept study, and we found the proof,” said coauthor Janet Boguslaw. “Low and mid-income employees who have the opportunity to share in the capital built through their labor have greater wealth than their non-employee owner peers. Period.”