Summary
Question: What wealth building effects do ESOPS have for families of color?
Wealth is the set of resources, held in many forms, which can be leveraged or invested for economic stability, security, and wellbeing. It is well known and broadly accepted that in the United States there is a significant gap between the wealth held by people of color and white people. What is less well known is that this gap can start to be closed through the wealth building opportunities available through Employee Stock Ownership Plan (ESOP) funds are an important extra support for retirement security. These resources, however, can be fluid in helping the next generation gain greater economic security and stability, which, in turn, can generate opportunities that provide children and grandparents with increased security and stability.
This Research Brief looks more closely at the impact of ESOPs on wealth by analyzing interviews of 195 ESOP employee owners, of whom 48% were people of color, at 21 companies in 16 states and across 8 industry sectors that were part of a 2019 nationwide study supported by the Employee Ownership Foundation’s Louis O. Kelso Fellowship. The original study was funded by the W.K. Kellogg Foundation with the organizational assistance of the Employee Ownership Foundation.
The opportunities for gap-closing wealth building for families of color come through ESOPs in at least three critical ways:
- Cash savings that accrue through equity ownership without wage income depletion.
- Employment stability: skill and education development, mentorships, and increasing income streams.
- Intergenerational wealth transfers through inheritances, experience, and networks.
We know from recent research that people of color in ESOPs have significantly greater wealth than people of color in general, at the median. We also know that the net household wealth of millennials is 79% higher for employees owners of color than for those who are not employed by firms with ESOP’s. We also know from research that over the last two decades, overall, employees with employee ownership have experienced fewer layoffs and better employment stability. Workers of color who are employee-owners have higher average and median job tenure than non-employee owners, and this is true for women of color and families of color with a young child. In this brief we shed light on what’s behind this phenomenon.