Recently, I’ve become intensely focused on how hourly workers — the foundation of the labor economy — representing 56% of the total US workforce — often have limited to no opportunity to build long-term equity in the economic world they are helping to create.
To explain what I mean, it’s probably easier to explain what equity means for salaried workers. Equity builds in two ways for salaried workers: The first way is that I build equity through my career accomplishments. If I’m a lawyer or doctor, I have professional degrees and licenses that are universally known and accepted. If I’m a software developer, I have my past code documented in my github that a potential employer can review. If I’m a business executive, I have my set of professional experiences that are displayed proudly on my Linked In profile. The second way equity builds is economically, most commonly through profit sharing, or stock options, or retirement plans.
Over the years, companies have tried valiantly to roll out the same structures and tools for hourly workers that they currently deploy for salaried employees in an effort to enable hourly workers to build long-term equity. It doesn’t take profound levels of expiscation to determine that most of these programs are clunky, ineffective, and are of very little practical use to everyday people.
For example, when an hourly worker stays at a company on average for ~3 months, it’s no surprise that as much as half of the private sector workforce doesn’t participate in 401(k) or pension plans. Or consider the fact that 1 in 7 hourly workers are part-time employees, which prevents them from even qualifying for the few corporate benefits that are offered.
Like a bad dream, hourly wage earners wake up each morning in a never-ending loop. No matter what they did the day or week before, their ability to earn essentially resets at the end of each pay cycle. Their ongoing work compounds for their company and the overall economy, but not for the workers themselves.
If you found yourself in that position, would you feel encouraged to give your best every day, hour after hour? The lack of meaningful emolument often leads to burnout and dissatisfaction. It’s a major factor in why we’re seeing widespread labor shortages. For that reason alone, it is in the interest of employers and employees alike to address this issue of how to create ownership for a broader part of the working population.
To better understand this and why it’s a problem, we first need to understand the concept of ownership more generally.
What is Ownership?
Keeping it simple, ownership is the right to control and reap the benefits of an asset — land, homes, stocks, commodities, cryptocurrency, and more — that yields dividends or appreciates in value over time.
As an example, imagine a small plot of land. If I own this land, I can do almost anything I want with it:
- I can sell it, ideally for more than it cost me, creating a net profit.
- I can clear the land and develop it, perhaps turning it into a business that earns an income.
- I can farm it, leveraging the earth to feed myself and my family.
- I can rent it out, generating passive income.
- I can use it as collateral for a loan.
- I can even do a combination of the above, maybe collateralizing the land for a loan to develop larger infrastructures like an apartment complex or a shopping center.
These options are all very different, but they have something in common. They create and capture value across time. The “across time” part is the hallmark characteristic of ownership. Ownership enables me to have a longitudinal interaction with my work. My ability to create long-term wealth is not dependent on “how much I worked this week.”
Even if I choose not to do anything and simply hold onto the land, history has shown that the land will likely be worth much more by the time I pass it on to the next generation. The same is true of most company stock, commodities, and other assets.
Critically, this means that ownership is the primary tool for creating generational wealth. Your ownership of an asset enables an economic activity like selling, developing, or collateralizing. With the proceeds from that action, you’re able to accumulate more assets. These assets can likewise be sold, developed, or collateralized, enabling even more accumulation, on and on, opening up countless degrees of financial freedom.
With the catalyst of ownership, a chain reaction can now commence — one step leading to another, until you’ve rocketed up the socioeconomic ladder to a better place than before.
But not everybody can participate in this chain reaction. In fact, most workers can’t.
The Ownership Disenfranchisement Problem
Consider the staff of a local restaurant. Like most workers, they take pride in their work and genuinely try to do the best they can in everything they do.
In an average shift, they might serve families, businesspeople on lunch, and maybe even a few wealthier members of the community. The waitstaff tends to these customers as if they were part of one big family, learning their names, preferences, dietary restrictions, and favorite sports teams — all while delivering piping hot food and drinks on demand. Over time, this top-tier service compounds to the benefit of the restaurant.
Families return. Businesspeople who stopped in for lunch visit weekly, such that meals at the restaurant become an ongoing expense line in another company’s budget. Soon functions, birthday parties, mitzvahs of bat and bar varieties, quinceañeras, holiday feasts with out-of-town relatives, retirement parties, and other revenue-generating events are happening regularly at this establishment — all thanks to the incredible efforts of the hourly workers.
It’s easy to see from this perspective how an hourly worker is more than just a person punching a time card. They are a part of a network of value, and their contributions to a company far exceed the hours that they work or even the tenure of their employment.
But that is not the lived experience for most hourly workers today. For all intents and purposes, hourly workers are compensated as if the ongoing value they add to the company doesn’t compound across time. This has trapped a large number of the labor economy in such a way that even the most outstanding effort is not proportionally rewarded. Socioeconomic mobility is impossibly adamantine, creating an unsustainable moment in the labor economy today.
Change Needed. Technology Required.
In 2020, the world witnessed the beginning of a paradigm shift with the rise of COVID-19. Showing up to work suddenly had colossal risks associated with it that could far outweigh the value of a shift’s wages. All of us suffered from COVID’s impact, but data shows that low-wage and low-hour workers were hit hardest of all, and many are still recovering. Not only that, but the rise of automation and inflation disproportionally impacts the lowest-earning members of the workforce, most of whom are hourly workers.
Every day that passes makes it tangibly harder for the hourly wage earner to justify building equity for a world in which they have no stake. This may be why we are seeing declines in labor force participation for almost two decades, and a sustained 2% drop since 2020. These existential forces aren’t slowing down, and if we hope to see the global economy stabilize, I believe we need to find a way to create ownership for hourly workers — one that leverages technology and the free market to give hourly workers a useful and lasting piece of the world they’re creating.
