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Book Review
March 2023

Employee ownership as an employment stabilizer

How Did Employee Ownership Firms Weather the Last Two Recessions? Employee Ownership, Employment Stability, and Firm Survival in the United States: 1999–2011. By Fidan Ana Kurtulus and Douglas L. Kruse. Kalamazoo, MI: W. E. Upjohn Institute for Employment Research, 2017, 178 pp.,

Employee ownership, or the owning of a business by the people it employs, is a quiet yet enduring aspect of capitalism. In 2014, employee ownership through stock-purchasing programs was practiced among 21 Fortune 100 companies, and 22.9 million U.S. employees were covered by some form of employee ownership. Providing a deep dive into employee ownership, How Did Employee Ownership Firms Weather the Last Two Recessions? is an informative read for employers and employees alike. Written by Fidan Ana Kurtulus and Douglas L. Kruse, this book on labor economics revisits the two recessions that occurred between 1999 and 2011 (the 2001 dot-com recession and the 2007–09 Great Recession), examining the effect of employee ownership plans on firm and employment stability. The book’s chapters cover three main areas. Chapters 1 and 2 provide background information and discuss historical trends in employee ownership, chapters 3 and 4 present findings from an empirical analysis of employee ownership in the U.S. labor market, and chapters 5 and 6 discuss the authors’ findings and conclusions.

Chapter 1 establishes Kurtulus and Kruse’s research motivation. The authors describe four interrelated benefits from employee ownership: increased economic performance, job security and firm survival, broad-based financial prosperity, and reduced workplace conflict. When employees share in the success of a firm, they are more likely to increase their productivity to further that success. Employee ownership may increase job security and firm stability by increasing employee tenure among employees who feel they have skin in the game, while higher employee performance allows firms to maintain their standing during market downturns. Easier access to capital markets provided by employee ownership allows workers at all levels to share in a firm’s success, leading to greater worker prosperity throughout the firm. Because employee ownership encourages employees to contribute more to company performance, levels of workplace conflict can be reduced by aligning employee incentives.

As highlighted in the second chapter, employee ownership has been present since the early days of the Republic and remains prevalent in the current labor market. Having been practiced in the whaling and fishing industries of colonial New England, employee ownership expanded during the Industrial Revolution as Charles Pillsbury, Andrew Carnegie, and John D. Rockefeller instituted profit-sharing programs in their companies. At the turn of the 20th century, technology pioneer Eastman Kodak instituted the first known employee stock option program (ESOP), allowing employees to purchase company stock at a significant discount on the condition they remained with the company, a structure still in practice at many companies today. These ESOPs have become the most prevalent form of employee ownership in the United States, and they receive special attention in the authors’ analysis.

Using data collected by the General Social Survey and information from U.S. Department of Labor (DOL) pension records, the authors lay out trends in employee ownership between 1999 and 2014. Employee ownership covered 20.1 percent of private sector employees in 2002, declined slightly in 2006 and 2010, and then recovered to 19.5 percent in 2014. DOL pension records show a consistent trend in the share of private sector companies offering ESOP plans, with that share peaking at 14.9 percent in 2016, before declining slightly, to 13.6 percent, in 2012. The combined data show employee ownership is greatest in communication and information technology companies, in which more than 45 percent of employees participate in ESOP plans. The participation rates in manufacturing, transportation, utilities, and finance, insurance, and real estate are slightly lower, hovering around 30 percent. Employee ownership is more prevalent at larger firms.

In chapters 3 and 4, Kurtulus and Kruse assess the impact of employee ownership on the change in employment levels at firms (relative to the national unemployment rate) and compare the effect of different types of ownership programs. Using data from the S&P Compustat database, and performing a regression analysis, the authors find that employee ownership firms, especially those offering ESOP plans, do not reduce staffing by as much as nonemployee ownership firms. However, the findings also show that, in periods of low unemployment, employee ownership firms are slower to hire, which suggests a stabilizing effect over the business cycle. On their own, these findings allude to the impact of employee ownership, and specifically ESOPs, on mitigating turbulence in the labor market at the firm level.

The benefits of employee ownership extend to firm survival. Using a predictive regression model on the data, Kurtulus and Kruse show that employee ownership reduces the likelihood of firm failure, especially for firms with an ESOP offering. In this model, the authors define firm failure broadly as a firm’s disappearance from the dataset, including disappearances due to acquisitions or mergers. In a second set of analyses, the authors also define firm failure narrowly as liquidation or bankruptcy, although the results using the narrow definition are not statistically significant. The relationship between employee ownership and firm survival is correlational and may suffer from self-selection bias, because people who are determined to stay with a firm for a long time choose a stable firm that offers employee ownership or an ESOP plan.

The authors’ conclusions, presented in chapters 5 and 6, highlight several possible theories that could explain their finding that employee ownership, particularly ESOPs, increases both firm and employment stability. In addition, the authors suggest some policies that firms and governments can use to promote employee ownership. The finding that the benefits of employee ownership outweigh any potential negative effect from creating a free-rider problem or exposing an employee to greater financial risk is particularly interesting, and future research should determine whether there are situations in which the opposite could be true. An updated edition of the book that examines how these relationships held up during the pandemic recession of 2020 would also be interesting.

Overall, the authors present a thorough analysis that could be of interest to budding economists, businesspeople, and those who have written dissertations on labor economics. The empirical analysis presented in the book offers an example of two widely used econometric regression models, and its detailed explanation of the reasoning behind model choice could benefit discussions on labor economics and intermediate econometrics. Policy wonks will also enjoy the book for its rare effort to chart a path to greater labor market stability. For as long as employee ownership exists, there will be lessons to be learned from new research on the topic.

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About the Reviewer

William McCullough

William McCullough is an economist in the Office of Prices and Living Conditions, U.S. Bureau of Labor Statistics.

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