Using Employee Ownership to Build a More Equitable Future for Work

When the trash collectors of the 1930s (then known as “scavengers”) formed cooperatives to organize their work, they did so to meet an immediate and pressing need for better jobs. Their intervention in the labor market was a crisis response to market gaps. But they also laid out a vision and a set of principles that pointed at a different way to organize economic activity. Cooperatives have always walked this line between practical and visionary.

Market gaps change with the times, but employee ownership is once again being used to fill them. As job creation in our economy concentrates in the service sector, Americans increasingly find themselves working contractor gigs and patching together multiple part-time jobs. They are too often put in the position of organizing their work lives through online platforms and programming their replacements. Even in small business, which employs about half of the entire private sector workforce, job numbers are shrinking and are becoming less stable.

Cooperatives, employee trusts, employee stock ownership plans (“ESOPs”), and other employee-owned business forms are being used as tools for people locked out of good jobs to create jobs that they own. Worker cooperatives in particular, which in the 1960s and 1970s had come to be used as a strategy to exit the mainstream economy, are increasingly being used as a strategy to enter the economy, a major shift from utopianism to equity and inclusion. In the past five years, we’ve seen major US cities commit to supporting employee-owned businesses that create and save jobs. Last year, even the federal government passed a law to make it easier to finance transitions to employee ownership. These initiatives aim to meet real needs, but they are also infused with bigger ideas, particularly the hope that employee ownership could not just fill gaps in the market or help working people gain access to new labor markets, but that it could potentially be an effective response to systemic market inequality.

What does it look like to create and improve the full range of these jobs? What does it look like to in fact own these jobs? In three critical areas— shifts in the role of small business, automation, and the rise of contingent workers—employee ownership serves as both an immediate, practical intervention to make jobs better, and a longer-term structural intervention to reshape the workplace. In short, employee ownership can help us see a future of work that puts worker benefit at its core.

Entrepreneurialism: Expanding Access

The capital and small-business support landscape that produced the golden age of American small business has fundamentally shifted. Consolidation—of retail, of service sectors, of banks—has crippled (and in some cases wiped out) Main Streets. Consolidation has also radically decreased the amount and type of capital available to small business owners. Not only is it now more difficult to start and compete as a small business but a millions-strong wave of baby boomers is nearing retirement, overwhelmingly facing the closure of the businesses they built. It is unlikely that these businesses will be replaced by new, locally-owned startups.

But small businesses—and the jobs they anchor—don’t have to go away. Many of them can be preserved if their employees become the new business owners.

An employee ownership strategy for preserving legacy businesses and maintaining vibrant local service and manufacturing sectors, as well as stabilizing commercial corridors, is being implemented by major US cities, such as Philadelphia, Pennsylvania; Atlanta, Georgia; Miami, Florida; and Durham, North Carolina. A national community of practitioners has emerged, and unprecedented resources are being invested in financing these employee ownership transitions, from the Federal Home Loan Bank to mission-driven community development financial institutions (CDFIs) to philanthropic capital. Employee ownership doesn’t just save small businesses, it also creates a new class of small business owners—notably women, people of color, and low-wage workers—who have traditionally not had access to this opportunity.

Automation: Evening Out the Effects

In manufacturing, automation is having and will continue to have profound effects on jobs and job quality. Productivity increases are driven in part by automation, and jobs are being replaced—partially and unevenly, but steadily. As we contemplate a future where machines assist with and, in some cases, outright handle work that used to be done by human beings, we need to explicitly ask the same question we ask for small business: who owns and benefits from these assets?

There is one sector in US industry where employee ownership is developing dominance, via ESOPs, and that is engineering, professional, and scientific consulting firms. Joseph Blasi of Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing tells NPQ that, according to US Department of Labor Form 5500 (pension report) data that he and fellow professor Douglas Kruse have analyzed, in 2014, the US had 1,147 ESOPs that employ 184,783 workers in that sector. These firms, Blasi says, represent $20.3 billion in value, which works out to over $110,000 per worker. Blasi adds that, “there is no question that this industry, together with a similar story in US manufacturing, represents one of the largest concentrations of both employee ownership and high training/high skill workers in the world.”

In a sector where share ownership and participation are commonplace at higher levels of automation, these employee-owned workplaces provide persuasive proof of concept models—with high profit margins, demonstrably higher productivity, and longtime workforces. These firms can be industry influencers, with the potential to make elements of employee ownership the best practice even in lower wage automated work. When the workforce owns the assets and shares productivity benefits via ownership of a share in the company, this evens out the effects of automation, including for those workers whose duties or hours have shifted with as automation has been implemented.

Contingency: Employee Ownership as a Stabilizing Force

The employer/employee arrangement as we have come to know it is actually a relatively recent concept in human history. Employment is not a natural law; it’s a human relationship, and that relationship is being actively eroded. A growing percentage of the workforce works for third-party contractors and/or as independent contractors. Presently, it is estimated that as many as 30 percent of workers rely on the gig economy for at least part of their income. Increasingly, we are likely to see workers who are still be working, but outside of the employment relationship.

Many workers enjoy the freedom and flexibility that informal or non-employment work arrangements offer, but for a growing number this “new normal”—an unpredictable work life in an uncertain market—is destabilizing and exhausting. Even for those who still are traditional employees, the benefits implied by that employment relationship have frayed. Sixty percent of full-time hourly workers don’t know their schedule two weeks in advance. Without employment, workers don’t have access to all the things we typically associate with being employed—like benefits, training, health and safety protections, recourse, negotiation, a union. In fact, many workers in today’s economy are perceived to be unorganizable. Platforms and third-party contractors can aggregate a workforce, but that workforce cannot aggregate its own voice and power.

For low-wage workers in high-turnover industries—industries increasingly dominated by third-party contractors or an independent contractor model—employee ownership structures have created stability and increased job quality. Cooperative Home Care Associates in the Bronx, a 30-year-old home care agency with over 2,000 employees that invests in quality jobs, sees roughly one-third the turnover that is average in the industry. Importantly, it partners with SEIU 1199 to ensure worker voice and build political power for home care workers. California Harvesters, an 800-person farm labor contractor in California’s Central Valley structured as an employee trust, is proving how much worker-centered practices like the “coaching approach” to supervision and provision of wraparound services can create a recruitment and retention advantage.

Owning an Equitable Future of Work

Those of us interested in social, racial, and economic equity often talk about wealth-building and mobility. But for millions of low-wage workers in this country, the first task is stability. Stability is a precondition for mobility, and it is what employee ownership has been uniquely able to achieve at the firm level for low-wage workers. Businesses aggregating employee ownership and voice can stabilize wages and schedules, implement access to benefits that increase family economic stability, even retain small businesses in danger of closure via retirement.

The model for increasing mobility comes through aggregation of markets, workforces, benefits, and services for these employee-owned businesses. Networked models, shared services, labor partnerships, and advocacy with industry groups creates the kind of market and political power that can actually change the nature of the job. The power of aggregation holds true not just for employee-owned businesses, but for all efforts to change systems. The work of building a fairer economy requires multiple angles of attack, substantial creativity, and a willingness to see unlikely partners using unlikely strategies.

Employee ownership advocates are building a movement to aggregate employee-owned firms and their support infrastructure at the institutional level. This is our angle of attack to ensure that the future of work evolves as an equitable one.

We can take a page from those “scavengers” from the 1930s. They evolved into Recology, now one of the country’s largest and best-known employee-owned companies, a modern billion-dollar business focused as much on reducing waste as on collecting it. The first in the country to commit to a “Waste Zero” future, Recology credits their culture of innovation to not having outside shareholders. They draw a direct line between employees’ commitment to the company and strong customer satisfaction. These advantages help secure a long-term contract with the city of San Francisco that is decisively affirmed every time it is up for voter approval. Workers are unionized and have comprehensive benefits; the company has local hiring priorities and a partnership with workforce development organizations.

Trash collection—a job that was quite literally at the bottom of the heap—has been automated and professionalized. As the industry changed, Recology, which became a 100 percent ESOP in 1986, sustained the vision and reality of equity that animated its founders, creating good jobs in a stable and innovative company. This, too, can be the future of work.