How to fight inequality with stocks

Fascinating research, though a lot depends on who manages the ESOP, as we have seen cases where ESOP shares were used to entrench management.

New research from economist Jared Bernstein, previously the top economist to Vice President Joe Biden, finds that ESOPs actually reduce inequality a significant amount—and they might do it in a different way than anyone previously imagined.

“I went into the project thinking that ESOPs wouldn’t make much of a difference at all pushing back on inequality,” Bernstein said, “and I came out of it thinking there’s more there than I thought.”

Bernstein’s new paper, shared exclusively with POLITICO and set to be released later Tuesday morning, builds on the existing belief by economists that ESOPs reduce inequality by shifting shares of stock to people who are traditionally unlikely to hold stocks. Around 80 percent of the value of the stock market is held by the richest 10 percent of Americans while the bottom 40 percent barely have any wealth in the stock market at all. ESOPs transfer stock ownership from those who currently hold stock to those who don’t, causing capital income to be more equally distributed between the rich and poor.

But Bernstein looked at firms with ESOPs and discovered something else: they tended to have more evenly distributed wages than other firms. In other words, the gap between executive pay and the wages of low-wage workers was smaller in firms that offer some type of employee stock ownership.

via How to fight inequality with stocks.

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