Data from recent research has found that employee owned companies saved the federal government over $37 billion in 2010. The analysis used the Findings of 2010 General Social Survey (GSS) that has also demonstrated that ESOP companies provide more stable employment with employees four times less likely to be laid off and less likely to leave a company.
The Impact of Employee Ownership and ESOPs on Layoffs and the Costs of Unemployment to the Federal Government documents the details of the analysis. The savings come from income and employment taxes the federal government receives and the unemployment compensation that does not have to be paid out:
Unemployment has been the central economic issue for the last four years in the U.S. Major federal programs and expenditures have been created to reduce it, tax rates have been cut, and unemployment insurance benefits extended, among other steps. There has been little or no discussion, however, about how the form of business ownership affects unemployment. That is unfortunate, because it turns out that people who work for companies with employee ownership plans are vastly less likely to be laid off than those who do not. Data from the General Social Survey, widely regarded as the single best national survey data on social trends, shows that in 2010, for instance, 12.1% of all working adults in the private sector report having been laid off in the last year, compared to just 2.6% of those respondents who says they own stock in their company through some kind of company-sponsored employee ownership plan… in 2010, the implied federal savings from the lower layoff rates for employee owners is $37.4 billion and $6.3 billion per year for the longer 2002-2010 period. The implied savings for ESOPs alone is $14.6 billion for 2010 and $6.3 billion per year for the 2002-2010 period mean data.
Here is the press release:
Research Indicates ESOPs Save Federal Government Billions Due to Fewer Layoffs
January 14, 2013 (Washington, DC) – Using data from the 2010 General Social Survey (GSS), an analysis by the National Center for Employee Ownership (NCEO), in partnership with the Employee Ownership Foundation, evidences that employee stock owned companies saved the federal government over $37 billion in 2010, a year of high unemployment.
How? During the Great Recession of 2010, employees of employee stock owned companies were laid off at a rate more than 4 times less than employees of conventionally-owned companies.
“When a person has a job, she or he pays federal income taxes, Social Security taxes, Medicare taxes, and does not collect unemployment compensation,” said Employee Ownership Foundation President, J. Michael Keeling. “So, the fact that employee owners were more than likely to pay taxes, and not collect unemployment compensation, means Uncle Sam’s fiscal house would be so much better off if there was more employee ownership.”
The 2010 GSS showed that employee stock owned companies laid off employees at a rate of 2.6% in 2010, whereas the rate for conventionally-owned companies was 12.1%.
The NCEO analysis calculates that 18 million Americans worked for employee stock owned companies in 2010, with 11 million working in companies with employee stock ownership plans, or ESOPs. Savings from the low layoff rate of ESOP participants was $14.5 billion in 2010, or seven times more than the estimated $2 billion a year tax expenditure attributed to the special laws promoting ESOP creation and operation.
“Hopefully our Federal decision makers, all preaching support for policies to create jobs, will take heed that the best jobs policies are those that keep the unemployment rate low, and a low unemployment rate is also the best deficit reduction policy, which is having more employee stock ownership,” Keeling concluded.