How to Reduce Economic Inequality by Expanding Employee Ownership

While stock market volatility dominates headlines, it’s easy to forget that for most people in the United States, this turbulence is far from their day-to-day reality. Even with stock ownership at a record high, over 90 percent of all US stocks are owned by the wealthiest 10 percent of the population.

When workers have a stake in the companies they help build, the benefits ripple far beyond a bigger paycheck.

For millions of people, especially in low-wage sectors and communities of color, ownership remains out of reach. People in the United States are living on the edge, economically, with more than half of them reporting that if they lost their income, they would run out of money within a month. This affects not only their finances, but also people’s sense of agency, stability, and belonging.

The growing divide between those who own assets and those who don’t fuels deep fractures. The scale of the problem is daunting. There are no easy solutions. However, employee ownership of businesses is a powerful tool that can help narrow these divisions.

Why Employee Ownership of Businesses Matters

When workers have a stake in the companies they help build, the benefits ripple far beyond a bigger paycheck. Research from Project Equity shows that when ownership is broadly shared among workers, economic inequality declines.

Employee-owned businesses build wealth for workers, perform well financially, lower turnover rates, improve job quality, are more resilient to economic shocks and, importantly, reduce gender and racial inequality. Frontline workers, even in low-margin industries (like bakeries, restaurants, and house cleaning), have received profit-sharing payments in the range of $10,000 to $20,000 in their first years of employee ownership.

Over a career, employee ownership can generate hundreds of thousands of dollars in retirement accounts for employee-owners on top of standard 401(k) plans. In addition, employee-owned businesses often have beneficial spillover effects in the communities and local economies where they operate.

Types of Employee Ownership

In the United States, employee ownership takes three main forms: employee stock ownership plans (ESOPs), worker cooperatives, and employee ownership trusts (EOTs). Each of these offers a unique mix of features. Our descriptions below of all three of these forms lean heavily on Camille Kerr’s excellent NPQ article on the transformative power of employee ownership.

ESOPs are by far the most common form of employee ownership in the United States and benefit millions of people. The National Center for Employee Ownership reported that as of 2022 (most recent year available), there were 6,358 ESOP companies nationally, with $1.8 trillion in total assets, and close to 11 million people employed.  Employee numbers under ESOPs are on nearly the same scale as the entire nonprofit sector, which employs 12.7 million people.

An ESOP is structured as a federally regulated retirement plan, like a 401(k) or 403(b), which holds employer stock in the company where employees work and is managed by a trustee, who is typically selected by a firm management. Firms are rarely created as ESOPs; rather, it is an ownership succession strategy often used to create 100 percent employee ownership, typically in companies of over 100 people.

Workers in ESOP-owned companies receive a retirement account that changes in value based on underlying share value growth (or decline) and potentially also annual dividends, with a valuation being conducted annually by a third party. While more democratic examples exist, employee voting rights for most ESOPs are limited to major decisions like sale or acquisition.

Employee numbers under ESOPs are on nearly on the same scale as the entire nonprofit sector.

A worker cooperative, by contrast, is not structured as a pension plan. Rather, it is simply a business owned and democratically controlled by its workers, typically based on one member, one share, one vote. Workers also have equal voting power to elect the board of directors. Some states have a specific statute for worker co-ops; some of these laws may include provisions for minority nonworker members.

Workers at worker co-ops receive annual profit dividends (“patronage dividend”), typically based on hours worked. According to the latest survey conducted by the Democracy at Work Institute at the US Federation of Worker Cooperatives, there are presently an estimated 1,300 worker co-ops in the United States with a total of roughly 15,000 member-owners. Worldwide, the international worker co-op federation estimates that there are 11.5 million worker-owners of worker cooperatives, social cooperatives, and cooperatives of self-employed producers.

An EOT uses existing trust law (specifically, the noncharitable perpetual purpose trust) to create a vehicle that can lock a mission (namely, benefiting employees) into the structure of the business. Workers do not have direct ownership of shares, but can be given bonuses based on company performance.

In the United States, EOTs are a new phenomenon and numbers are small, although in other countries they are much more common. In Great Britain for instance, as of July 2024, a total of 1,756 EOTs with 124,000 employees have been created in the past decade, building on a 100-year tradition there.

Growth Potential

Employee ownership, as detailed above, is already a large sector of the US economy. But it has the potential to be much larger. A recent analysis from Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing demonstrates the potential to grow. As of 2022, potential employee-owned firms include approximately:

• 140,000 privately held firms, employing 33 million workers, which are strong candidates for ESOPs, and
• 1 million additional smaller firms, with 25 million workers, suited for worker cooperative or EOT transitions

Together, that is 58 million workers—nearly 35 percent of the entire US workforce—who could benefit from employee ownership if the infrastructure and financing were in place. Without intervention, many of those businesses will shutter or be scooped up by private equity. But with the right tools, they could instead become anchors of local wealth and community stability.

Can Employee Ownership Advocates Seize the Opportunity?

The potential for growth has been evident for some time. In 2016, a project led by The Democracy Collaborative called “Fifty by Fifty” launched with the goal of making the United States a country with 50 million employee-owners by 2050. But since then, ESOP numbers have been flat, if not slightly declining, as existing ESOPs are sold more rapidly than new ESOPs are being created. Meanwhile, while worker co-ops and EOTs have grown rapidly in annual percentage terms, total numbers in these two segments remain quite modest.

What is holding this potential growth back?

One clear problem concerns outreach: Too many business owners (and their advisors) don’t even know that selling to their employees is an option.

A perhaps bigger obstacle is financing. As Michael Zakaras, director of US Programs at Ashoka, wrote in NPQ in late 2024, “Seller financing is a common way to facilitate sales. With seller financing, the current business owners agree to a long-term, multiyear payment plan with workers who repay the loan via future company cash flow. But not all retiring business owners can afford to wait as many as seven to 10 years to get their full payout.”

In short, when business owners sell, they want to be able to cash out quickly.

That’s where specialized employee ownership funds come in, by providing flexible capital to make business transitions possible. Our recent collaborative report from Transform Finance and Ownership Capital Lab shows there are currently 28 funds focused on employee ownership with about $500 million in assets under management, yet they are collectively aiming to raise an additional $670 million to meet growing demand, which would more than double the available investment capital. Of course, even $1.17 billion is modest in the context of the economy, but added to existing bank financing, it offers a tool that could help grow employee ownership.

Additionally, nonprofits and advocates have a critical role to play in removing barriers to employee ownership. Some possible points of intervention include:

• Helping business owners understand their options. Many never hear that employee ownership is a viable exit strategy. Storytelling, convenings, and good old-fashioned advertising can make a real difference.
• Developing the advisory landscape. This includes hosting trainings and events that educate accountants, lawyers, and brokers about the ins and outs of employee ownership transitions as part of business succession planning.
• Supporting the financing ecosystem. Philanthropy in particular can make a difference here with grants, guarantees, and flexible capital. This can be especially important to ensure that people in low-income communities and communities of color have access to the wealth-building benefits of employee ownership.
• Building connections. Nonprofits and local business-focused organizations can serve as bridges by helping businesses, technical assistance providers, capital providers, and field builders connect.

The Next Wave

Together, we can unlock the financing, knowledge, and the infrastructure needed to turn the wave of retiring business owners into a generation of new worker-owners.

The potential for transformative impact is real—and deeply personal. As Ashley Bell, an ESOP employee at A Few Cool Hardware Stores in Washington, DC, shared at a recent Employee Ownership Ideas Forum: “I’m the only one of my friends who likes my job.”

Her pride in being a worker-owner was palpable—and a reminder that ownership isn’t just a structural fix. It’s a source of meaning, security, and belonging.

In an era of deep inequality and institutional distrust, employee ownership offers more than a business model—it offers a path to building community wealth rooted in economic democracy. It’s a strategy that aligns economic and social goals, empowering workers while preserving the businesses that anchor our communities.

But it is hardly inevitable that US society will seize this opportunity. It will take deliberate action—from nonprofits, advocates, funders, policymakers, and field builders—to move forward. The tools work. The time is now.