By Alison Lingane
In October the official United States unemployment rate dropped to 3.7 percent, which represents a 49-year low.
And yet, according to a recent Harris Poll, nearly 80 percent of American workers report living paycheck-to-paycheck, with little in the way of savings to handle any financial emergency. Compounding the problem (figuratively and literally), more than 70 percent of workers are also in debt, mainly from credit cards, mortgages, medical bills and student loans, putting them in a squeeze that will only get tighter and tighter over time.
The statistics in California are equally confounding. The state’s unemployment rate just dipped down to 4.1 percent, yet the latest estimates from the U.S. Census Bureau confirm that California has the highest official poverty rate in the nation at 19 percent, including nearly 13 percent of those who have jobs.
In California and nationally, historically low unemployment rates are not a sign of prosperity, but indicate the arrival of an economy that specializes in creating low-paying, temporary jobs with no benefits or job security. According to a Princeton University study, such positions were responsible for 94 percent of American job growth between 2005 and 2016, and the Trump Administration has done nothing to reverse those trends. What we are sorely lacking is quality jobs.
There is one powerful solution to create quality jobs that has been significantly underutilized. Small businesses that convert to employee ownership, or adopt this model from the beginning, outperform similar firms on just about every meaningful economic standard, including those relating to salary, benefits and job security.
The Coming ‘Silver Tsunami’ Is an Opportunity for Employee Ownershp
Constructive change is often spurred by crisis, and in Southern California the threat of potential business closings may open the door for explosive growth in employee ownership.
About half of small business owners in California are baby boomers between the ages of 55 and 70, and the term “silver tsunami” has been used to describe the wave of upcoming retirements. Unfortunately, 85 percent of these job-creating businesses do not have succession plans in place, and in Southern California this means over 150,000 small businesses currently owned by boomers may be at risk for closure in the very near future, putting nearly three million jobs in jeopardy.
These boomer business owners need a way out, and employee ownership could provide it. Transitioning to an employee-ownership structure—whether an Employee Stock Ownership Plan, a worker-owned cooperative or an employee ownership trust—offers retiring entrepreneurs a safe and profitable way out of their dilemma. Only 20 percent of businesses listed for sale ever sell and only 15 percent will be passed on to a second generation, but employee ownership transitions enable the employees to preserve their jobs and keep important community resources in local hands.
While employee ownership is relatively unfamiliar to the public at large, it has a long track record of success. A recent study by the National Center for Employee Ownership found that workers in employee-owned enterprises have 33 percent higher median wages and 92 percent higher household net worth than workers at similar companies with traditional ownership structures.
A Sunny Outlook for Employee Ownership in Southern California
In Southern California as well as elsewhere, small businesses are responsible for about half of all employment, and they circulate about three times as much money in local communities as firms owned by chains or out-of-town interests. The death of such businesses serves the interests of no one, and non-local or corporate ownership means reduced benefits for communities and likely reduced pay for workers.
Fortunately, employee ownership offers a profitable, reliable and time-tested alternative to these disturbing possibilities.
Let me share a story about Sarah Vegas. Sarah is a single mom who has spent her career in low-paid food service jobs. Sarah recently became a business owner when a wonderful, locally-owned bakery called Niles Pie transitioned from its boomer owner to become worker-owned. Just six months after Niles Pie made the transition, their hard work had paid off. All of the worker-owners, including Sarah, received a meaningful profit-sharing check. As Sarah tells it, this was the first time in her son’s life that she’d had a chunk of money like that.
Sarah sat down with her 11-year-old son Attison and said to him, “You know what? You have also sacrificed for me to become a business owner. I want you to help me think about what we should do with this money.” For Sarah, employee ownership means that her small family is financially secure and that she can balance her career with parenting.
More stories like Sarah’s can redefine the concept of quality jobs. For Southern California business owners nearing retirement, this is the time to consider employee ownership to ensure that quality jobs become the norm. Even Congress is responding, having recently passed the Mainstreet Employee Ownership Act, whereby the U.S. Small Business Administration provides loan guarantees and assistance to established firms that transition to employee ownership.
This will only bode well for the 150,000 Southern California small business owners expected to retire over the next decade who can fulfill the promise of quality jobs throughout the region.
Alison Lingane, a job quality fellow at the Aspen Institute and a co-founder of the nonprofit organization, Project Equity, which plays an important role in creating quality jobs by growing the number of employee-owned businesses.