Employee Ownership: An Unstable Form or a Stabilizing Force?

Abstract

Is it a viable, efficient, and stable organizational form for the equity of an enterprise to be all or substantially owned by employees? The question is part of a long debate about the nature of capitalism and the way in which capitalism distributes the economic gains from production. In this paper, we take on a seemingly very simple set of empirical questions that we hope will shed light on whether employee ownership of firms "works" in some sense. We do this by examining the actual track record of the 27 publicly-traded firms that we were able to identify for which approximately 20 percent or more of their stock was held by or for employees in 1983, and compared the experience of these firms over time (through the end of 1997) to that of a control sample of 45 firms that were similar in size and in similar industries as of 1983. Our results suggest that, far from being an unstable form, or a form used primarily for transitions, the ownership of a substantial block of shares by employees appears to be a relatively stable arrangement. Indeed, it may be an arrangement that "stabilizes" the firm itself, by making it less likely that the firm will be acquired, taken private, or thrust into bankruptcy. The form may also be associated with more stable employment levels. And it appears to achieve this without cost in terms of productivity or financial performance, and may, in fact, enhance performance.

JEL Classification: J53, J54, G34