Inštitut za ekonomsko demokracijo

Effects of employee ownership – in numbers

Author: Elena Galevska

Effects of ESOPs - in numbers

Employee-owners are naturally inclined to make decisions that maximize the well-being of workers. Aligning the interests of owners and employees not only improves the situation for the personnel but also leads to massive savings for the governments. The effects of employee ownership become even more apparent when it is most needed – in times of crisis.

The Great Recession of 2008 was felt by companies around the world, many of them facing declined earnings, lower sale volumes due to consumer concerns, and unfavorable macroeconomic conditions, leading to further liquidity issues or even complete closures for some. The positive effects of employee ownership can be seen when comparing the level of survival and the ratio of layoffs.

While the privately owned firms were forced to lay off 12.1 % of their workforce in 2010, employee-owned companies tried to find other ways to survive and used firing as a last resort, having to make the tough decision for 2.6 % of their colleagues. These effects multiply when considering all the resources that the governments would need to pay out as unemployment and social benefits, as well as the decrease of disposable income on the household level if there would be no employee ownership hance no effect on layoffs and closures.

The Employee Ownership Foundation wanted to check if the same effects would repeat with the latest crisis, thus funded the implementation of a survey covering 247 executives of employee-owned companies from ESOP Association member countries, as well as 500 executives of non-ESOP firms with 50+ employees.  The research was done by two renowned Rutgers professors: economist Douglas Kruse, and economic sociologist Joseph Blasi.

The findings of the survey were well summarized in a report, confirming the expected positive effects of employee ownership. Namely, the median job loss in privately owned firms amounted to 13 % while ESOPs saw a median job loss of only 0.4%. The difference between employee-owned companies and the rest is anything but negligible – with a 3.63 bigger likelihood to retain non-managers and 3.95 higher chances to retain managers.

Employee-owned firms were more reluctant to fire workers during the pandemic in both essential business fields, as well as areas where layoffs are more likely. More precisely, ESOPs laid off staff at only one-fourth the rate of non-ESOP companies among essential businesses. Even among so-called non-essential businesses like restaurants, the rate of layoffs was still 2.77 times lower at ESOPs than at non-ESOP firms.

Moreover, the effects of employee ownership could be seen in terms of health and safety measures taken to protect workers. ESOPs outperformed with 85.1 % of them transferring work home, compared to 66.8 % of other firms. ESOPs were also quicker to provide personal protective equipment (PPE) to their workers, with 53.7 % of ESOP firms having provided PPE by the end of March 2020, compared to 41.3 % of non-ESOP firms.

Overall, it is estimated that 98.3 % of ESOPs ultimately took protective measures on behalf of their workers, compared to 88.9 % for firms overall. This results in potential governmental savings in terms of medical treatment and healthcare costs for insured persons. To conclude, employee ownership effects are felt in more than one aspect and echo across different industries, countries, and time periods. For these reasons, the Institute for Economic Democracy puts efforts into the broader implementation of the ESOP model in Slovenia.

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