ESOPs Result in Smoother Labor Relations

A recent study published by the University of Maryland and the Federal Reserve Bank of New York ("ESOP Fables: The Impact of Employee Stock Ownership Plans on Labor Disputes," by Peter Campton, Hamid Mehran, and Joseph Tracy, 2005) reports that unionized public companies saw a significant decline in strikes and other labor disputes after an ESOP was set up. Contrary to what a lot of people expect, workers in unionized companies are more likely to be covered by an ESOP than workers in nonunionized companies. The study looked at labor disputes between 1970 and 1995. Unionized companies that set up ESOPs had somewhat more contentious labor relations before the ESOP than companies that never set ESOPs. But things changed after the ESOP. Labor disputes other than strikes dropped 8%, while strike incidence dropped 18%, normalizing for these events in other companies. The effect was especially strong in the companies where the ESOP had more than the median ownership (8.5%), with strikes down 33.6%. Less robust ESOP companies saw only marginal changes.