Is Mark Cuban Right About Employee Stock Ownership?

Mark Cuban is a creative guy. To help reduce wealth inequality, he advocates that private firms give every employee stock, for example. 

To be sure, it is not a panacea. Employee ownership in retail, hospitality, and gig work would be difficult, for example. 

Still, the evidence suggests employee equity ownership plans have had measurable but generally modest success at reducing wealth inequality, particularly within participating firms and among middle-income workers. 

Research demonstrates that broad-based equity distribution serves as a powerful driver of wealth accumulation for low- and middle-income workers:

Capital Asset Accumulation: Studies from the National Center for Employee Ownership suggests that workers participating in employee stock ownership plans accumulate substantially higher median net worth (often 90 percent or higher) compared to non-employee-owners in similar industries.

IZA World of Labor (Kruse, 2016) suggests that employee ownership disproportionately benefits female and minority workers as well.

They have not, by themselves, substantially reduced wealth inequality across entire societies, because participation is often limited to certain employers, ownership stakes are typically modest, and broader drivers of wealth concentration (housing, inheritances, business ownership, and financial assets) remain dominant.

Still, equity participation likely would help reduce wealth inequality.  

Observers might argue that relatively low wealth inequality in Nordic nations, compared with many developed nations, is not primarily due to employee ownership, however. 

The outcomes are shaped by:

• strong labor unions

• progressive taxation

• universal public services

• pension systems

• high employment

• capital taxation (historically)

Employee ownership exists but is not the principal equalizing mechanism.

And there are practical issues beyond the limited number of firms that might reasonably be expected to support such policies:

• Employees may have too much wealth tied to one company. If the firm fails, workers can lose both jobs and retirement savings.

• Stock compensation programs need to be broad-based.

• Even generous employee ownership usually represents a modest fraction of total national wealth compared with:

• inherited wealth

• real estate

• privately owned businesses

• financial portfolios

So measures to broaden ownership potential in those areas also matters greatly. 

In practice, countries with relatively low inequality often combine multiple policies:

• broad-based employee ownership

• progressive taxation

• education equity

• pensions

• social insurance. 

Evidence suggests employee ownership is a useful complement to these policies rather than a standalone solution. 

But Cuban is on to something. Broad employee participation in equity ownership can help reduce some amount of wealth inequality.