LOW-WAGE BUSINESS MODEL CREATES PARASITE ECONOMY

The term the parasite economy is being applied to employers whose business model is built on low-wage jobs. These corporations take more out of their employees and society than they put in, hence they are parasites. The low incomes of their workers mean that the workers can only survive with the support of the publicly-funded safety net, including subsidized food, housing, child care, and health insurance, as well as the Earned Income Tax Credit. [1] And to make matters worse, some of these corporations are ones that use loopholes in the tax code to avoid paying their fair share of taxes.

As Henry Ford realized 100 years ago, if you don’t pay your workers enough to buy the products you make, your business model will struggle to be sustainable. In 1914, Ford began paying his employees $5.00 a day, over twice the average wage in the auto industry. He also reduced the work day from 9 hours to 8 hours. Ford believed he would get higher quality work and less turnover as a result. He stated, “The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.” [2]

As Henry Ford acknowledged in the early 1900s, the U.S. economy is driven by consumers. About two-thirds of our economic activity today is consumer spending. However, low-wage workers have a very limited ability to purchase goods and services, either to support themselves and their families or to sustain our consumer economy. A strong middle class is essential for the vitality for our consumer economy.

Although some of our politicians deride those who use public assistance as “takers” (as contrasted with “makers”), the real “takers” in our economy and society are the low-wage paying corporations. These low-wage employers are subsidized by the tax dollars that pay for the public assistance programs their low-paid workers (and their families) rely on to survive. [3] This is corporate welfare and these corporations are truly “takers,” as opposed to “makers” who contribute to our economy and society. [4]

Low-wage corporations are parasites, making nice profits and typically paying high compensation to their executives while relying for their success on low pay and public subsidies for their workers. Walmart and McDonald’s are classic examples.

It is estimated that American taxpayers pay roughly $153 billion a year for public assistance programs that support low-wage workers and their families. Seventy-three percent or almost three out of every four people who use public assistance programs live in families where at least one person is working. Forty-eight percent of home care workers rely on public assistance, along with 46% of those providing child care and 25% of part-time college faculty. [5]

A large part of the restaurant industry is a classic example of the parasite economy. The industry association, the National Restaurant Association, is a leading advocate for the low wages of the parasite economy. It has lobbied hard and is actively engaged in election campaigns in its efforts to keep industry wages low by opposing increases in the minimum wage and supporting the existence of an even lower, special minimum wage for tipped workers. The federal minimum wage for tipped workers – most restaurant employees – is $2.13 per hour and hasn’t been changed since 1991. The median wage for restaurant servers including tips is just $9.25 per hour. As a result, restaurant servers are three times as likely to be in poverty as the average worker.

The effects of moving to a low-wage business model were seen in the 2009 outsourcing of hotel housekeeping by Hyatt Hotels in the Boston area. Ninety-eight housekeepers were fired and replaced by contracted temp workers at half the pay, with no benefits, and with almost twice the workload. The fired housekeepers, some of whom had worked for Hyatt for 25 years, had had average pay of $17 per hour with good benefits. They were financially stable and appeared secure – able to pay their bills, support their children including with college costs, and help aging parents. Today, seven years later, the effects are still being felt by some of them, who have depleted their savings, defaulted on loans, and have poor credit ratings. Some have experienced high levels of stress and health consequences. Taxpayers had to provide unemployment benefits, as well as food, housing, and health care subsidies. [6]

The low-wage business model is pervasive in the U.S. today. Seventy-three million Americans (nearly a quarter of our population) live in working poor households that are eligible for the Earned Income Tax Credit (EITC). This public program, the primary replacement for “welfare as we know it” that President Clinton ended in 1996, provides subsidies to workers who are paid so poorly they and their families cannot survive without public assistance. The federal government spent $57 billion on EITC benefits in 2014 and many states provided their own additional EITC benefits (roughly another $10 billion). Most of these workers – and you have to be working to qualify for this benefit – work for large, profitable corporations.

Between 2003 and 2013, wages (after adjusting for inflation) actually fell for the 70% of workers at the lower end of the U.S. income spectrum. Further contributing to the need for public assistance, fewer and fewer Americans have health insurance through their employers. As a result, working-poor families (as opposed to the unemployed) receive more than half of all federal and state public assistance. Beyond the EITC, public subsidies that go primarily to the working poor include ones for food and nutrition ($86 billion), child care ($71 billion), housing ($38 billion), and health insurance ($475 billion).

My next post will discuss why the parasite economy is so prevalent in the U.S. today and what we can and should do about it.

[1]       Hanauer, N., Summer 2016, “Confronting the parasite economy,” The American Prospect

[2]       Nilsson, J., 1/3/14, “Why did Henry Ford double his minimum wage?” The Saturday Evening Post (http://www.saturdayeveningpost.com/2014/01/03/history/post-perspective/ford-doubles-minimum-wage.html)

[3]       Hanauer, N., Summer 2016, see above

[4]       Johnson, J., 5/3/16, “McDonald’s, the corporate welfare moocher,” Common Dreams (http://www.commondreams.org/views/2016/05/03/mcdonalds-corporate-welfare-moocher)

[5]       Jacobs, K., 4/15/16, “Americans are spending $153 billion a year to subsidize low-wage workers,” The Washington Post (https://www.washingtonpost.com/posteverything/wp/2015/04/15/we-are-spending-153-billion-a-year-to-subsidize-mcdonalds-and-walmarts-low-wage-workers/?utm_term=.7120f83f959f)

[6]       Boguslaw, J., & Trotter Davis, M., 9/5/16, “Lessons from the Hyatt 100,” The Boston Globe

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