Association for Public Policy Analysis & Management

This paper examines how employee stock ownership contributes to workers’ income, retirement saving, and job security. Since the 1970s, many US companies implemented stock sharing and let workers participate in business decision-making. Major types of the employee stock ownership include Employee Stock Ownership Plans (ESOPs) and stock purchasing plans, among others.

With the wide adaptation of equity-based worker compensation, there is often debate within publicly-traded companies as to which type of compensation provides higher income for workers. For example, employees at Amazon complained the recent transition from stock bonuses to proportional wage increases. Unlike economic theory, different types of compensation seem to differently reflect worker’s productivity. Then which better reflects?

In a twin case of retirement saving, a worker with stock ownership accumulated approximately one million dollars for retirement savings, but another saved only thirty thousand dollars during the same time period. Most of the stock ownership plans mandate the retention of stock for certain period. The forced saving effect of employee ownership may improve the level and gap of retirement saving in US society.

Job security literature shows that workers possessing the company stock are also less likely to be concerned with potential termination of employment. When implementing distributions of stock ownership, the layoff process of workers becomes more complex and difficult. In addition, workers are likely to accumulate core skills and information for the company.

Under above framework, four main hypotheses are established. First, workers with employee stock ownership plans receive higher value of compensation than other workers. Second, workers with ownership stake in the company eventually accumulate greater wealth. Third, workers joined the ownership plan longer holds greater wealth. Fourth, workers with ownership stake maintain a stronger feeling of job security.

To test these hypotheses, this paper uses data from the Shared Capitalism Research Project (SCRP) obtained from the National Bureau of Economic Research (NBER). The SCRP provides surveys of 40,000 workers from fourteen US public companies and 338 domestic and overseas worksites from 2002 to 2004. The data includes information on workers’ occupation, industry, income, accumulated wealth, and job security, while it specifies whether the worker participates in each of the nine different categories of shared capitalism plans. Although SCRP is a pooled dataset, it was used because the nine ownership indicators allow for clear specification of the treatment and control groups.

This paper uses Ordinary Least Square (OLS) as a base empirical model. The results will be compared for differently specified treatment and control groups to make more convincing causal interpretations. However, the workers actively joined in the company’s ESOPs may have higher workplace performance so that their income, wealth, and job security can be different from passive others. To see the separate impact of the activeness, Difference-in-Difference (DID) analysis will be performed with an indicator dummy of whether the workers joined the company due to its ESOPs or not. For sensitivity check, I used a GSS dataset to simulate the same models. The effectiveness of model specifications will be checked by non-linear models.