Poverty Growth in Indiana – Can Employee Ownership make a Difference?

Rick Van Doel, President/CEO of the Indiana Center for Employee Ownership

As reported by the Sagamore Institute, every major Indiana city saw a percentage increase in the growth of poverty from 2000-2015, an overall increase in the impoverished population of 164,381 (Riggs et al., 2017).  Of the 11-major Indiana cities, the poverty by population ranged from a low of 3.1 percent in Fishers, to a high of 38.2 percent in Bloomington, a city by city ranking, and the percent change from 2000 to 2015 is provided in Table 1.

Table 1 Poverty by Population Indiana’s Largest Cities

Note: Adapted from Public Good Index: A Study of Indiana’s Major Cities, by T. Riggs, C. Batson, K. Curry, E. Dewes, N. Heikens, K. Clark, and B. Nepomuceno, 2017, Indianapolis, IN, Sagamore Institute.

As identified by Riggs et al. (2017) 7 of the 11 major cities experienced population growth, however the rise in poverty nearly exceeded the increase in population.  For example, from 2000 to 2015, Indianapolis had an increase in poverty from 11.8 to 21.3 percent or 85,063 individuals during this same time period the population grew by 89,063.  As of 2015 the impoverished population in Indianapolis was 175,623 individuals.  Conversely, Evansville had a poverty growth from 13.7 to 21 percent an increase of 8,259 individuals, but during the study period the city population decreased by 1,639.  This would imply that more of the residents became impoverished.  As of 2015, the total impoverished population in Evansville was 24,398.

Wage growth of median household income as reported for the 11-major Indiana cities was only 3.47 percent.  However the cost of living during this period increased substantially above the wage growth, according to the American Institute for Economic Research (2018) cost of living calculator it would take $137.79 dollars in 2015 to have the same purchasing power as $100 dollars in 2000.

Clearly the causes of poverty are complex and not limited to one or two factors.  However, given the relatively flat wage growth that has not kept pace with the cost of living could employee-ownership or increasing employee ownership have a positive impact in reducing the growth of poverty in Indiana?

Recent research by the National Center for Employee Ownership (Wiefek, 2017) funded by the W. K. Kellogg foundation evaluating employee ownership and economic well-being among employee-owners age 28 to 34 would seem to indicate that working for an employee-owned company does provide for increased wages and improve wealth generation outcomes.

This nationally representative survey data speaks to the issues being faced by states like Indiana. Wiefek (2017) identified the median wages from income were $40,000 for employee-owners as compared to $30,000 for non-employee-owners.  This overall pattern held when looking at median wages by industry..  As described by (Wiefek, 2017, p. 11):

Notably, the two groups of workers start out at the same modest wages. In other words, the differences between employee-owners and non-employee-owners are not entirely the result of employee-owned companies hiring workers who can demand a higher wage. Instead, the difference emerges as workers continue to work for employee-owned companies.

The median household net worth (wealth) is positively impacted through employee-ownership as the overall net worth for employee owners is 92% higher than non-employee-owners ($28,500 vs. $14,831).  These data identify that at age 20 based on the respondent data there is not a large difference in median household wealth, however by age 25 the employee-owner had acquired a 32% increase in wealth, and by age 30 a 92% increase.

Employee-ownership is not a panacea to remedy poverty growth, and wealth inequality in Indiana.  However, Wiefek’s research clearly identified that employee-ownership does have a positive impact on both wages and wealth generation (household net worth).  Therefore increasing employee-ownership would be expected to have a positive influence on Hoosiers.  Currently in Indiana, (based on the 2015 DOL Data) there are approximately 180 companies organized as an Employee Stock Ownership Plan with over 130,000 participants.  As reported by Project Equity (2018) members of the Boomer generation own 41,770 Indiana businesses that employee 532,800 Hoosiers.  What will happen to these Indiana businesses when their business owner retires? Some may be sold to a competitor or an investment group, some may be passed down to the next generation – but what a great opportunity to transition ownership to the employees via establishment of an Employee Stock Ownership Plan.  This would provide a unique opportunity for Hoosiers to share in the wealth they helped to create.

Have a question on employee ownership, please contact INCEO.

References:

American Institute for Economic Research. (2018). Cost of Living Calculator.   Retrieved from https://www.aier.org/cost-living-calculator
Project Equity. (2018). Baby boomers own nearly half of privately-held businesses with employees in the United States.   Retrieved from http://www.project-equity.org/communities/small-business-closure-crisis/
Riggs, T., Batson, C., Curry, K., Dewes, E., Heikens, N., Clark, K., & Nepomuceno, B. (2017). Public good index: A study of Indiana’s major cities. Retrieved from https://www.sagamoreinstitute.org/download-the-public-good-index
Wiefek, N. (2017). Employee ownership & economic well-being: Household wealth, job stability, and employment quality among employee-owners age 28 to 35  Retrieved from www.ownershipeconomy.org