By Joel D. Joseph, Economist, Author of Inequality in America: 10 Causes and 10 Cures
I had come to the conclusion recently that our next generation doesn't have a chance. According to Federal Reserve data, the average price of a home in the United States went from $35,000 in 1973 to more than $500,000 in 2023, a whopping 14-fold increase. Wages during the same period went from an average of $4 per hour to $23 per hour, a 5.75 multiple. With housing prices going up 1,400% and wages rising 575% you can understand why GenX and GenZ are in big trouble. Then add on their student debt and the situation is frightening.
The problem is even worse in major cities on the East Coast and in California. The average price of a home in San Diego is now more than one million dollars. I bought a single-family home in Washington, D.C. in 1973 for $48,000 on a salary of $6 per hour. Now, according to Zillow, that same house is worth $1.229 million. That little house is now unaffordable for most Americans. It is the first time in American history that our children are not doing as well as their parents.
Light at the End of the Tunnel
KKR, also known as Kohlberg Kravis Roberts, is a large private equity firm worth $87 billion. KKR executive Pete Stavros believes that employee ownership is the key to successful businesses. Stavros's obsession with employee ownership traces back to his working-class upbringing outside Chicago where his father paved roads for a construction company.
Under Stavros's direction, KKR recently bought Potter Global Technologies, a manufacturer of fire protection equipment in St. Louis. Employees were given an ownership stake in the company. The goal is for KKR to sell Potter Global Technologies in five or so years, for a profit. If that happens, workers will get payouts tied to their tenure, on top of salaries. If past sales are any indication, the money can be life changing.
While employee ownership is just getting underway at Potter Global Technologies, years earlier it came to C.H.I. Overhead Doors in the small town of Arthur, Illinois. C.H.I. was founded by a local Amish carpenter in the 1980s, and in 2015, it was purchased by KKR for $700 million. Workers weren't sure how to react to the news. Brad Edwards, a 19-year C.H.I. veteran, recalled rumors going around the factory floor: "Like, 'Oh, this is big New York private equity, they're gonna skin this down to the bare bones until they can squeeze a few bucks off of us. And whenever they leave, there's going to be nothing left.' "
After the sale, KKR executive Pete Stavros came to Arthur, Illinois to speak to the employees. He brought unexpected news: Far from the steep cutbacks the workers feared, C.H.I would be growing, and the entire workforce would now be part-owners in the business. "The lessons around the dinner table for my sister and I were really about the plight of the hourly worker," Stavros said. "There's no incentive. I mean, the thing that really drove my dad crazy, he used to talk about the need to just 'work steady.' If you work too fast and you're too productive, your hours go down and your paycheck goes down."
In 2011, Stavros put the idea of employee ownership into action for the first time at KKR. Now Stavros's firm has implemented the model at 47 companies and counting. The idea, Stavros says, is simple: give rank-and-file workers a stake in their company on top of salary -- plus a voice in how the business is run day-to-day. With skin in the game, those workers will be motivated to work smarter and harder. And the employees are getting big payoffs. Stavros started with employees who'd just joined the company. Their payout: $20,000. The numbers went up from there, according to how long employees had been working at CHI. Brad Edwards wouldn't reveal exactly how much he made, but said the check was in the mid-six figures. It was life-changing for his family. "Our kids don't have to worry about us being stressed out about money," Brad's wife Crystal Edwards said. Hopefully, KKR's employee ownership program will be copied by many other investment firms. It makes a lot of sense that if you give employees a piece of the pie, they will work smarter and harder. In addition, the employee ownership program is supported by liberals and conservatives alike. If we keep growing worker ownership, workers will again be able to afford to buy homes in the United States, even in California.
