It has long been recognized that certain businesses that
proudly tout their low-wage, low-price models as being “good for America,” are
actually using tax revenues to cover business expenses—effectively stealing
from us to pad their profits. They pay
their workers so little that most must turn to some form of public assistance
to survive. Outrage at these practices
gets muted by economic pundits who describe the necessity of letting the market
work its magic and by accommodating journalists who fall for this nonsense. In fact, there is no labor market at the
lowest wage scales. There, employers
have absolute power and there is nothing save minimum wage legislation between
workers and abject poverty.
Using Walmart, McDonald’s and the restaurant business in
general as examples of what he refers to as “the parasite economy,” Nick
Hanauer takes on this issue in a refreshingly straightforward manner. Hanauer is a Seattle-based entrepreneur and
venture capitalist, and the founder of Civic Ventures, a public-policy incubator. His article, Confronting the Parasite Economy, appeared in The American Prospect.
Hanauer argues
that the low-wage model is not only bad for the workers who must endure it, but
it is bad for everyone because it is harmful for the economy in general.
“There are two types of
businesses in America today: those that pay their workers a living wage—the
real economy—and those that don’t—the parasite economy. And all of us who live
and work in the real economy should be royally pissed at the way the parasite
economy is sucking us dry.”
The real economy depends on consumers earning enough from
wages to purchase things beyond the bare essentials and create the demand that
generates business investment and hiring.
“The difference between these
two economies is stark. The real economy pays the wages that drive consumer
demand, while the parasite economy erodes it. The real economy generates about
$5 trillion a year in local, state, and federal tax revenue, while the parasite
economy is subsidized by taxes. The real economy provides our children the
education and opportunity necessary to grow into the next generation of
innovators, entrepreneurs, and civic leaders, while the parasite economy traps
them in a cycle of intergenerational poverty.”
“The real economy delivers on the promise of capitalism. The parasite economy relentlessly undermines
it.”
The crime of
the parasite companies is that they benefit from the demand generated by the
wages paid by other companies, but refuse to return that revenue back to the
economy by providing enough income to their own workers to participate as
consumers. People earning at or near the
minimum wage are incapable of acquiring bare necessities without assistance let
alone participating in the economy as consumers. Instead their employers use their low-wage
practices to siphon money out of the economy and into their own pockets.
“These are the real deadbeats of
the parasite economy: companies with a business model predicated on a cheap
supply of taxpayer-subsidized labor, growing fat on the vast wealth of consumer
demand generated by the middle-class wages of the real economy, while leaving
employees with little if any discretionary income of their own.”
“….low-wage workers at parasite
companies—mostly giant and profitable corporations like Walmart and
McDonald’s—cannot afford to robustly consume our products, or most anybody
else’s, in return. The parasite economy is simply bad for business.”
Hanauer provides a few examples of how low-wage policies
have forced workers to seek government assistance.
“A leading advocate of the
parasite economy is the National Restaurant Association (the other NRA), which
has worked assiduously to keep wages low. The federal minimum wage for tipped
workers, unchanged since 1991, is a shocking $2.13 an hour. Lest you think all
those workers are raking in tips, as a small elite of servers in high-end urban
restaurants do, the median hourly wage for restaurant servers, including tips,
is just $9.25 per hour. Tipped workers are more than twice as likely as the
average worker to fall under the federal poverty line, and restaurant servers
nearly three times as likely, according to a 2011 study by the Economic Policy
Institute.”
“In the fast-food industry, more
than half of all families—52 percent—are enrolled in at least one public
assistance program, at a combined cost of $7 billion a year. (Until 2013,
McDonald’s even provided a “McResources” hotline to help its impoverished
workers apply for government aid.) And Walmart
alone, according to a 2014 report from Americans for Tax Fairness, costs
U.S. taxpayers an estimated $6.2 billion a year in public assistance to its 1.4
million mostly low-wage workers—coincidentally, an amount roughly equal to
the $6.5 billion a year the company
lavished on stock buybacks over the previous decade. Quite simply, McDonald’s
and Walmart and other businesses in the parasite economy have grown to rely on
the tax dollars of other companies and other workers to indirectly subsidize
their payroll—and their immense profits.”
Parasites like Walmart and McDonald’s are big enough and
powerful enough to force other companies who might otherwise not be so
mean-spirited to follow their examples.
The net result is an enormous burden placed on public welfare programs.
“Today, a majority of the money
we collectively spend on anti-poverty programs doesn’t go to the jobless, it
goes to the working poor. According to a recent analysis by the Economic Policy
Institute, 69.2 percent of all public
benefits go to non-elderly households with at least one working member, nearly
half of whom work at least full-time. In 2014, the EITC alone cost U.S.
taxpayers $67 billion, directly supplementing the incomes of the working poor
and, thus indirectly, the payrolls of their parasite employers. The Child Tax
Credit (CTC) cost the federal government another $58 billion; food stamps, $80
billion; housing vouchers and rental assistance, $38 billion—again, all
programs that largely benefit families of the working poor.”
“And then there’s Medicaid.
According to the Kaiser Family Foundation, total state and federal Medicaid
spending cost U.S. taxpayers $475 billion in 2014. Conservatives disparage
Medicaid as a costly ‘entitlement,’ but an entitlement to whom? Workers can’t
work when they’re sick or dead; that’s why real-economy companies provide their
workers with health insurance and paid sick leave. But parasite economy
companies pass that cost off to taxpayers.”
Hanauer wishes to make sure we realize that low wage
policies result from choices made, not from economic necessity.
“While there are parasite
companies and parasite jobs, there are no parasite industries or occupations,
and there is no line of work worth doing that cannot command a living wage. For
every Walmart, there’s a Costco. For every McDonald’s, there’s an In-N-Out
Burger. For every single mom waiting tables at the local diner for $2.13 an
hour, there’s a healthier, wealthier counterpart earning $13 an hour or more
(soon to be $15!) in Seattle or San Francisco or in the thousands of
real-economy businesses nationwide where management understands that the ‘minimum
wage’ is meant to be a minimum, not a maximum.”
To make his point, Hanauer compares Costco with Sam’s
Club, Walmart’s big-box equivalent.
Costco is well known as an employer that pays its workers well; Walmart
is well known as a employer that doesn’t.
“To the casual observer, the two
chains look virtually identical: cavernous warehouses stacked high with pallets
of heavily discounted goods, from groceries to apparel, electronics to major
appliances, and everything in between. Both chains earn a substantial portion
of their profits from annual membership fees ($45 a year at Sam’s Club, $55 at
Costco), and both chains offer myriad other discounted services to their
members, from insurance to travel to banking. Together, the two chains dominate
the warehouse retail category: Sam’s Club claims the largest geographic
footprint, with 652 stores located throughout the U.S. and Puerto Rico,
compared with Costco’s 492 stores. But Costco is the perennial market leader in
paid members (currently 84 million, while Sam’s Club had 47 million in 2012),
gross revenue ($113 billion in 2014 versus $57 billion), and pre-tax earnings
($3.2 billion versus $2 billion).”
“Glassdoor.com, which relies on
worker-reported data, lists an average wage for a Sam’s Club cashier at less
than $10 an hour, while a Costco cashier earns nearly $15. Costco’s wages may
start only a couple bucks an hour higher than at Sam’s Club, but Costco quickly
rewards workers for their loyalty and experience. A 2008 article in Slate reported that a Costco cashier
with five years’ experience earns $40,000 a year plus benefits—enough for a
two-cashier Costco family to find themselves firmly ensconced in the American
middle class, enough to pay into the
federal treasury rather than draw out
of it.”
Labor costs at many large corporations are not as large as one might expect. A study performed in 2011 estimated that at
that time Walmart could have raised the minimum wage paid to its employees to
$12 per hour and maintained its income if it only raised its prices by
1.1%. Would anyone have even
noticed? Another study estimated that
the burden of a $15 wage on McDonald’s would force them to raise prices by
about 10% in order to maintain income.
Would the world come to an end if a dollar meal cost a dime more?
If the answer is to raise the minimum wage dramatically,
what are the consequences? Economists like to assume an efficient labor market
and predict that workers will suffer job losses. Some economists actually take the time to look
at data and arrive at more optimistic conclusions. Hanauer prefers to use his high-wage home
state of Washington as an example.
“Washington has long recognized
the fundamental law of capitalism—that when workers have more money, businesses
have more customers and hire more workers. That is the model that we have been
following here, and our economy has been booming as a result. At $9.47 an hour
(indexed to inflation), Washington state’s minimum wage had long been the
highest in the nation, and as one of a handful of states with no tip penalty,
our tipped workers already earn four and a half times the $2.13-an-hour tipped
minimum wage in much of the rest of the country.”
“And yet according to Bloomberg,
high-wage Seattle supports the second-highest concentration of eateries per
capita in the nation—trailing only even-higher-wage San Francisco. And
according to the Paychex IHS Small Business Jobs Index, Washington also enjoyed
the highest rate of small-business job growth in the nation, while even
higher-wage Seattle ranks second by major metropolitan areas.”
Seattle, in 2014, passed the first $15 minimum wage in
the nation, one that would be reached over a period of a few years.
“Restaurateurs and right-wing
think tanks warned of ruin. Businesses would close. Workers would lose their
jobs. The invisible hand would punch us in the mouth. But it never happened. “
“As the Puget Sound Business Journal recently reported in a front page
story titled ‘Apocalypse Not: $15 and the Cuts That Never Came,’ six months
after the first wage increase went into effect, Seattle’s restaurant industry
is growing faster than ever. Even celebrity chef Tom Douglas, who had warned
that Seattle could lose a quarter of its downtown restaurants, has continued to
add restaurants to his local empire. ‘Douglas has now changed his mind about
the law,’ the PSBJ reports, ‘saying he was “naïve” to think that restaurants
would raise pay on their own.’ That he was. And then on February 15, 2016, The Seattle Times reported that ADP’s
national survey of economic vitality ranked Washington state number one in the
country for both wage and job growth. And you thought higher wages killed jobs.
Not hardly.”
Essentially every nation is concerned about low demand
that has caused slow economic growth. At
the same time businesses have used their power to implement policies that have
allowed them to drive wages ever lower in real terms. Can they not realize that this will not go on
forever?
There is a solution to slow growth. All one has to do is put more money in the
hands of consumers. The easiest way to
do this is a significant rise in the minimum wage. Experience has shown that such a rise will
cause a ripple effect generating increased wages well above the new minimum
level. Let’s do it!
The interested reader might find these articles
informative:
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