Should owning a share of your workplace be encouraged as home ownership is encouraged?

[Boojatta]

Where I used the word "encouraged" in the title, I was thinking of the tax code, for example. I'm not merely talking about some rhetoric or empty words somewhere as being enough to qualify as encouragement.

I should also point out that I used the word "owning" to make it analogous to people foreseeing that they will pay off their mortgages and own their homes. However, if ownership for companies listed on a securities exchange means equity, then perhaps a better idea would be people becoming creditors of their employers in the sense of becoming bond holders. When housing prices are reasonably stable over a long period of time, investing in home ownership is like saving money, and not like buying stocks.

All of the rhetoric about the wonderful job-creating effect of money (not to be confused with venture capital) that is devoted to little more than maximizing short-term returns on the stock market seems to be based on the assumption* (see below) that the capital investment that is required for job creation is a game for the wealthy, and that most people should initially put all their eggs in one basket: the home ownership basket, which is a non-diversified and thus risky investment.

* Is that a reasonable assumption?

[Yo_Mama]

1. It's not a bad plan, but it can be quite risky

If you work at a company, and you have a lot of your "savings" invested at the company, then if the company gets in trouble your job (income) and capital are both gone or reduced.

Diversifying by buying shares of other companies would generally be a better risk.

Alternatively, if it is a small company and employees can collectively own a decent chunk, it might help employees to band together and keep the company running or stop the company from being run as a scheme for enriching a few executives. That would reduce risk for the employees, overall.

So I think the question really turns on whether the employees can own a big enough share of the company to be able to control at least some of the decision-making, and thus reduce risk.

As a mechanism for affecting corporate decision making, unions have in the past provided the same risk reduction with the necessity to invest capital, which basically produced a "least-risk" situation for employees.

[Boojatta]

2. "If the company gets in trouble ..."

A company continues to make interest payments associated with any loans from a bank, unless the company can continue to operate after the bank repossesses collateral. Perhaps workers could use their own money to make loans, with the company providing collateral consisting of equipment that the workers can seize using the same procedures that a bank would use to seize the same equipment. The important innovation would be giving workers a right of first refusal to make the loan before the company is permitted to get the loan from a bank or from a potential investor in bonds.

Perhaps this seems to be a solution in the absence of any problem. However, if there were deflation as there was during the Great Depression, then unionized workers might experience an effect as though their wages were rising. It's not clear what is the basis for the entitlement to receive what are in effect rising wages while others remain unemployed and legally barred from offering to compete with the unionized workers by working at wages that are constant in real terms. If you have in mind any strategies for reaching the desired conclusion (that unionized workers earned everything they have and are entitled to all of their privileges), then I would like to know what those strategies are. If similar strategies could be used to provide rhetorical support for various dogmas of social darwinism, then it would be interesting to investigate exactly where and how the rhetorical support fails to be sound logical support.

In my proposal, unionized workers would be helping to finance the creation of their own jobs, and would be taking the same kind of risk that banks take, with the associated entitlement to seize collateral if the terms of the loan aren't fulfilled by the debtor.

[Yo_Mama]

4. They wouldn't seize it, though

Because if they did, their jobs would be gone.

They could maybe trade debt relief for a share in corporate management?

It's not a bad idea.

[JDPriestly]

3. I'm not qualified to give investment advice. But with that caveat, here is my opinion.

Diversify. Don't put all your eggs in one basket.

1) If you are an owner or partner in the company -- obviously by definition you will have money or sweat equity invested in it.

2) If your company is small but turning a profit, and your equity share gives you some meaningful influence on how the company is run, then maybe it is OK especially if your company needs the capital you put into it just to keep going. In that case, your investment may help you keep your job.

3) But, if you are a lower level employee in a huge company and are thinking of buying a few stocks, I think not.

First, buying a few stocks will probably not permit you to influence management decisions so it won't improve your job security.

On top of that, you have to realize that your biggest investment is not your house but your job. It's your job that provides your income and permits you to invest in other things -- like your house.

So, if you are working for a big company, you already have placed your biggest investment -- your time, your talents, your reliance on the company for income -- in that company. It's not a good idea to put much more than that in one place in my view.

Of course, it depends. If you think the company is just the greatest on earth and you trust the management, then maybe.

But remember the company can easily be bought out -- and everything can change very quickly so you have to keep track of your investment just as you would any other investment. Check the stock market reports on it very frequently and get out when the signals suggest that it would be wise.