WSJ Article Points to Need for More Employee Ownership for Workers of Color

An excellent article in the Wall Street Journal on August 5, For Black and Latino Workers, Equity Rewards Are Elusive, discussed how research consistently shows that people of color are much less likely to accumulate equity in their companies than other workers. Quoting General Social Survey data, the article noted that Black and Latino workers who report having stock in their companies have about half of what white workers do. A 2020 survey from Carta, a stock plan administration company, found that in startups, Black employees account for just 2% of all the equity grants.

The article echoes other reports about Black and Latino assets in general. The median ownership of assets held by white families is 10 times that of Black families and 8.5 times that of Latino families. That lack of wealth makes it harder to acquire more wealth through home ownership, makes families more vulnerable in a crisis, makes it harder to send kids to college or start new businesses, and lots of other problems. Because wealth makes it possible to build more wealth, the problem is a circular dead end for many families of color.

Research by the National Center for Employee Ownership reported in 2017 using data from the Bureau of Labor Statistics' National Longitudinal Surveys (referred to in the Wall Street Journal article), that in employee stock ownership plans (ESOPs), which are broad-based by law, employee-owners of color had 30% higher income from wages, 79% greater net household wealth, and median tenure in their current job 36% higher than workers of color without such a benefit. The respondents in this panel survey (i.e., one following a group of people over time) were 28 to 34 at the time. It is at this stage that developing assets can have the most significant impact over time. Workers of color in this sample had median wealth of $16,450, while the median amount for non-employee-owners was $9,175. The data also looked at poverty rates of sampled cohorts over time. In 1997, workers of color had incomes of just 1.7 times the poverty level, but that grew to 3.16 for those participating in ESOPs at the time of the survey, compared to a movement of 1.43 to 2.31 among those workers without an ESOP.

There is no mystery why ESOPs have the potential to address the problem of wealth inequality for people of color so effectively: ESOPs have non-discrimination rules, and ESOPs are funded by the employer, not the employees. It is a compelling argument for why ESOPs are needed now more than ever.