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Converting to employee ownership to combat the “Silver Tsunami”

May 12, 2017 / Sadaf Knight / Economy, Small Business

One of the more significant demographic shifts in the US is the retirement of the “baby boomer” generation—those born between 1946 and 1964. Each month, more than 250,000 people turn 65, meaning that the economic contributions of these individuals, if they are able to retire, goes down. Of course, the Great Recession had a huge impact on peoples’ retirement savings and may have helped to delay retirement for many baby boomers. Nonetheless, as this generation continues to age out of the labor force, it will cause ripple effects throughout the economy.

When it comes to what some call the “silver tsunami” and small businesses, the biggest question is, what will happen to the businesses that baby boomers own when they retire? Will they sell the businesses, pass them down to a relative, or simply close up shop? This is an important question, as nearly 4 million businesses are owned by retiring baby boomers. Losing these businesses and financial assets, jobs, income, and wealth would have a deep impact in our communities.

One way to ensure that businesses remain viable and within their communities is to transfer ownership to employees. A recent report by the Budget & Tax Center explains how this model works, and what it could mean for North Carolina’s small business landscape. The report estimates that company closures have resulted in over 2.2 million jobs lost since 2000. Though some of this job loss is inevitable, some of it could have been prevented if companies could have stayed open. It also states that in North Carolina, the number of retirees will grow by 200,000 over the next 15 years.

Converting to employee ownership can be particularly helpful in preserving businesses that are in already vulnerable areas. The map below shows that the share of the baby boomer population is higher in counties located in the south east, north east and far western parts of the state, which are economically distressed rural communities. Losing businesses in these areas will have a much greater impact.

There are two types of employee-owned businesses:

There already are over 100 employee-owned businesses in North Carolina. More than 750,000 current and former employees have benefited from stock ownership plans, and $4.4 billion has been paid to employees since 2013.  There are many benefits to converting to employee ownership, beyond just business retention. These businesses are more resilient, competitive, rooted in local economies, and help workers achieve greater financial security. It is also cost-effective as an economic development strategy. The report shows that efforts to assist businesses to transition to employee ownership are a fraction of the cost compared to traditional economic development incentives.

The Budget & Tax Center estimates that there are 23,000 businesses in the state that are good candidates to convert to employee ownership, particularly very small businesses with fewer than 50 employees. This is a significant opportunity. CSBDF’s work with small businesses is driven by our mission to foster economic development in underserved communities. This includes lending and business services, and also a commitment to sustaining our communities and ensuring that local small businesses have the resources to succeed. As such, we must continue to find new and inventive ways to support the growth and viability small businesses. Employee ownership represents one strategy that could have great impacts in our communities.