Fining McWalmart: Charging Employers for the Social Costs of Poverty Wages

It is time to push strategies that go beyond the minimum wage and penalize low-wage employers for the harm they do to workers and communities.
Erica Smiley
September 1, 2015
Fight for $15
Minimum wage increases put hard cash in workers’ pockets. But while providing relief for struggling families, minimum wage increases on their own do not build worker power. 
 
Even if it proves true that more take-home money frees workers up to become more active, minimum wage increases do not automatically build the sustained power that comes from strong worker organizations with members who vote and win binding contract agreements. Given the dire state of affairs for today’s working families, it is this kind of power we actually need. And our focus should be on strategies that build it. It is the possibility of pairing real relief with real power that generated a new wave of strategies to win back revenue that corporations have extracted from workers, and in the process of doing so generate new mechanisms for workers to organize and bargain with (or around) their employers.
 
How It Works
 
The “low-wage employer fee” is actually any strategy that attempts to win back the resources workers lose when large, low-wage corporations transfer their costs to the public while continuing to increase their own profits. In the strategy’s simplest form, it works in the following way. First, workers identify large, highprofit, low-wage employers based on the gap between their current wage levels and what worker and industry standards determine sustainable. These companies, able to pay a fair wage and afford necessary benefits such as health care, child care, and retirement choose not to in the interest of higher corporate profits and salaries for top executives. As a result, workers are dependent on services like food stamps and other public assistance programs to survive. To make matters worse, these employers commonly offer erratic work schedules that make securing second jobs difficult. And the wages they pay make the basic supplies of life—food, electricity, housing, and so on— nearly unaffordable. Second, worker organizations measure the companies’ cost to taxpayers and the community—including those related to the unmet basic needs of low-wage workers themselves—who are put in the position to essentially subsidize the wages and benefits that should be but are not provided by these companies. This cost creates the basis for setting the fee low-wage employers would then pay. Third, a fund is created specifically for the purposes of supporting the outlined needs of low-wage workers in the area. It is not allocated to a state’s general budget, but rather to a dedicated funding stream for the sole purpose of offsetting the local costs that poverty wages exact on workers and society. Last, and maybe most importantly, a committee or council of workers—including those who would benefit from the fee as well as those who might implement programs that would be funded by it—is created to oversee the fee. Thus, impacted workers have decision-making power over the revenue generated. Ideally, this grouping is democratically elected by and accountable to workers within related industries and has some level of decision-making authority similar to New York’s wage board. And through that authority, it can facilitate company appeals and support workers negotiating directly with their employers over similar practices and standards. But even the establishment of an advisory committee can increase workers’ voice in setting better standards in chronically low-wage sectors.
 
Once such a fee is implemented, low-wage employers can either negotiate directly with workers over wages and conditions of the industry or they can pay the low-wage employer fee that workers will appropriately allocate to subsidize the community’s assumed costs of low-wage work. How they pay the fee, and how often, would be set based on the local context—either in a lump sum or in intervals throughout the year. The hope is that it ultimately expands workers’ ability to collectively define industry standards—either directly with employers or around them via smartly crafted state interventions.
 
The Case for a Low-Wage Employer Fee
 
It is easy to imagine this fee impacting some of the most notoriously large, low-wage employers in the United States—from Home Depot, Yum! Brands, Bank of America, and Wells Fargo to TJMaxx, FedEx, Aramark, Darden, Walmart, and McDonalds. Walmart and McDonalds alone employ over two million workers in this country. Any state with a low-wage employer fee creates a stronger climate for workers to demand better pay directly or be subsidized by the company in other ways. 
 
Corporations like these have spent years developing layers of infrastructure and management to place between them and their workers, allowing them to shirk responsibility for worker treatment and industry conditions. In the process, these same companies have deeply embedded their labor costs onto society, allowing them to further maximize profits for those at the top. According to a recent research brief titled “The High Public Cost of Low Wages,” researchers found that
 
stagnating wages and decreased benefits are a problem not only for low-wage workers who increasingly cannot make ends meet, but also for the federal government as well as the 50 state governments that finance the public assistance programs many of these workers and their families turn to. Nearly three-quarters (73 percent) of enrollees in America’s major public support programs are members of working families; the taxpayers bear a significant portion of the hidden costs of low-wage work in America.
 
To get a sense of what this is costing our communities in real dollars, the report goes on to say that “the states with the highest budgetary cost of low-wage work (over US$1 billion) were California (US$3,676 million), New York (US$3,309 million), Texas (US$2,069 million), Illinois (US$1,098 million), and Florida (US$1,027 million).”1
 
Some of the largest companies in the world, such as Walmart, have a disproportionate number of workers on public assistance. A 2004 report noted, “the Democratic Staff of the Committee on Education and the Workforce estimates that one 200-person Walmart store may result in a cost to federal taxpayers of US$420,750 per year—about US$2,103 per employee.”2 A decade later, Walmart remains the largest low-wage employer in the world. 
 
The most obvious solution to all of this is for companies like Walmart to directly raise wages for workers so that they do not have to be on public assistance, noting workers’ consistent demand of US$15/hour and full-time hours. In fact, one of the main conclusions of “The High Public Cost of Low Wages” is that “overall, higher wages and employer-provided health care would lower both state and federal public assistance costs, and allow all levels of government to better target how their tax dollars are used.”3
 
Unlike a campaign to only raise the minimum wage or pass a living wage, the revenue from a low-wage employer fee can be administered by a new or existing public entity, like the Office of Labor Standards in San Francisco or the Department of Social Services and Development Services in Connecticut, accountable to workers and the broader community. Impacted workers can either join this committee or engage it via an independent advisory grouping to democratically determine how funds are allocated. Rather than scrambling to pass a new minimum wage law every time the economy “improves” without workers, generating more money for the top 1 percent without creating new jobs or improved wages for everyone else, worker organizations can negotiate with the managing agency over the value of the fee.
 
Because the fee positions workers to define what makes “good” or “bad” employer practices and industry standards, it has the potential to build worker power in two ways. On the one hand, it can open doors for more non-union workers employed by low-wage corporations to organize at their workplace, engaging those companies in improving standards directly to avoid paying the fee. On the other hand, organized workers can leverage the fee in existing negotiations with union employers, giving these workers the ability to define whether or not their employer meets those same standards. In this way, the low-wage employer fee helps win stronger protections and fairer compensation in existing collective bargaining agreements. Altogether, these strategies, and others like them, could make it more costly for companies not to negotiate directly with workers.
 
One question that has often come up is, why choose the tactic of a fee? Why not just tax large, low-wage employers? If you can win a campaign to tax large, low-wage employers, please do not let this article stop you. However, there are some nuances to consider in most locations. In some areas, whether it is a tax or a fee won’t matter by local or state definitions. Other locations have strict ways of differentiating the role of a tax versus a fee. In general, taxes generate revenue and are applied to the overall budget, allocated to programs based on public pressure and the dominant political party’s priorities. Fees are often more specifically defined, applied directly to those receiving a service or to those creating the need for the service. And the use of the fee goes specifically to cover the costs of that service. Because the lowwage employer fee is designed to offset the costs of services necessitated by large corporations not paying workers enough to cover the costs themselves, the fee model is preferred. In addition, the increased ability of workers to negotiate over the value and allocation of the fee is more desirable than a tax which could potentially get lost in a state’s budget process while muting the voice of impacted workers. The good news is that this approach is somewhat flexible and can be tested in different ways depending on the local context.
 
Conditions to Consider
 
Now, before every group with a website ventures out to test this strategy, there are some key movement conditions to consider that will impact the outcome. Some situations are more conducive than others. First and most importantly, workers must be in motion, making direct demands on their employer and for the industry as a whole, for a low-wage employer fee to expand organizing and collective bargaining rights. It is then the task of these same workers to define “good” versus “bad” employer practices, not the policy wonks. It will be these workers and their immediate communities who will benefit from the fee itself and evaluate if it in fact improves their ability to organize and bargain with a set of employers and industry actors.
 
Earlier this year, in the state of Connecticut, a coalition of care workers along with child care and senior care consumers established the Connecticut Campaign for Worthy Wages. The campaign aims to encourage policymakers to consider a “McWalmart Fee” that offers a way to redirect the hefty price tag of public care services to large, low-wage corporations that operate in the area. They defined this as companies who employed more than five hundred people in the state of Connecticut, and the fee was calculated for every work hour that anyone was paid less than US$15. Many of Connecticut’s largest lowwage employers mirror the national list, with Walmart and McDonalds right at the top. But other, lesser profiled companies would also be impacted, including Stop & Shop and Cigna.4 It is estimated that low-wage work costs a state like Connecticut approximately US$486 million in public assistance–related expenses a year.5 Connecticut care workers have been actively fighting to fund state programs like Medicaid/CHIP (Children’s Health Insurance Program) and TANF (Temporary Assistance for Needy Families), and improve overall standards.6 But with no consistent revenue stream, they are vulnerable to the state budget’s ebbs and flows, often in competition with other important communities over pennies in the budget process. This year alone, Connecticut Governor Dan Malloy implemented mid-year budget cuts impacting this sector and others: “The largest cuts are US$5.8 million from the Office of Early Childhood for child care services, US$2 million from the University of Connecticut’s operating expenses, and US$1 million from the UConn Health Center in Farmington.”7
 
The McWalmart Fee aimed to fix this, generating revenue for a service, senior care and child care, needed by many McDonalds, Walmart, and other low-wage workers who are unable to afford it. In a poll conducted by Abacus Associates, “by a margin of nearly 3-to-1 (71 percent to 25 percent),” voters want the Governor and the State Legislature to find ways to address the issue of “big, profitable corporations that pay low wages. The low wages result in employees relying on Connecticut taxpayer-funded programs to meet the basics like food, housing, and health care for their families.”8 While the Connecticut fee did not pass, it represented a game-changing fight that exposed the true benefactors of austerity.
 
To avoid paying the fee, companies need only work with their own employees to improve wages and standards at or above what workers are asking for. They could simply follow the advice of Ken Jacobs and the other authors of “The High Public Costs of Low Wages” and increase wages and benefits. In fact, one Connecticut-based company has already demonstrated some leadership on this question in response to the national low-wage worker movement for fair wages. This past January, the insurance giant Aetna, based in Connecticut, announced that it would raise its own starting wage up to US$16 an hour,9 and in late April, these raises finally made it into its employees’ pockets.10 Aetna also announced that it would reduce the out-of-pocket health care expenses for its lowest paid employees. The presence of a low-wage employer fee could encourage more Connecticut companies to make similar choices in addressing the needs of their low-wage workforce.
 
Another set of conditions that could either support or undermine low-wage employer fees involve workers’ ultimate abilities to hold their employers responsible. This is an incredibly important consideration when trying to improve the conditions for workers who are sub-contracted, misclassified, operating down a supply/ distribution chain, and those who work at franchises. The International Franchise Association (IFA) is particularly threatened by policies that expand its scope of responsibility as it has worked so tirelessly to separate the ultimate employers from workers. A U.S. District court judge in Washington ruled against the IFAs’ petition reclassifying fast food franchises as “small businesses” to avoid paying workers US$15/hour.11 And the National Labor Relations Board ruled last year that McDonalds had responsibility over workers at its own franchises.12 Of course these corporations have struck back. McDonalds, most notably in a recent press stunt, raised wages solely for its so-called “direct employees.” (On this question of holding franchisors accountable on wages and working conditions, see Max Fraser’s “Organized Money” column in this issue of New Labor Forum.)
 
In addition to having organized workers in motion and making active demands on their employers and other industry actors, groups will have to navigate the quagmire of jurisdictional laws governing what municipalities, states, and the federal government can actually implement when it comes to the relationship between workers and their employers. In many states, only the state government can levy taxes, and municipal fees must be narrowly defined.
 
Challenges
 
An early challenge to establishing a bad business fee is to assess how large the fee should be to significantly correct the costs of low-wage work in a community. True, winning the fee alone spells victory. But few of us want to pass something that will not have significant impact on workers. Currently, this is simply something to be determined based on local conditions, companies, and impacted workers.
 
Another challenge is to define the scope of benefits and services covered by the low-wage employer fee. Is it best used narrowly, focusing on one specific program or benefit undercut by low-wage work? Or should one fee cover multiple programs disproportionately impacted by low-wage work? One example of the former exists in New Mexico, where a fee was developed to fund early childhood development programs—thus providing needed child care and education services for McDonalds, Walmart, and other low-wage workers who, as parents, find themselves stuck between paying the electric bill or child care. This sparked the “People for Kids” campaign, led by the Organizers in the Land of Enchantment (OLÉ) and the American Federation of Teachers. In the process, workers at low-wage employers are organized as parents demanding early childhood education funds from the state, and also as workers at these various corporations to demand access to affordable child care directly from their employers. Those operating the early childhood education centers would also benefit from increased funding to support improvements to the quality of services provided as well as compensation for those providing it. Although this effort lost in 2015, the coalition is poised to keep pushing for it in addition to other reforms.
 
On the other end of the spectrum, organizations led by the Illinois and Indian Regional Organizing Network (IIRON) in Cook County, Illinois are currently crafting the “Responsible Business Act” that would allow the fund to be spread out over several programs to support housing assistance, unreimbursed health care costs, and even grants to non-profits providing direct support to low-wage workers, such as heating and nutrition assistance. Under this model, low-wage workers are organized as members of local community groups, and in the process are given both a powerful voice over how fees are allocated and some resources to better monitor the program that in itself builds organization.
 
Organizers will also have to determine how to deal with employers who have existing collective bargaining agreements that fall short of newly articulated standards, often set by lowwage workers such as those at Walmart who are not protected by a union contract. Ideally, unorganized workers demanding better standards in an industry where some union employers exist would encourage those employers to lift the floor—improving existing collective bargaining agreements to match if not build on what unorganized workers are fighting for. Doing so would continue to demonstrate the value of unions and union employers to a community because union members are able to directly negotiate better wages and overall standards without having to pass a bill.
 
However, depending on health care, pensions, and other benefits and conditions offered by a contract, organizers may want to assess potential carve-outs to protect union employers from the fee. Offering a blanket exemption for collective bargaining agreements risks creating a low ceiling for workers in already bottomfeeding industries, diminishes the value of unions, and in worst cases encourages company-initiated unions to keep standards low. But not taking existing contracts into account could undermine the organizing it took to win them, and create a crisis in current and future union bargaining. Whatever approach organizations take will have to be nuanced and maximize involvement in these decisions from the workers who would be impacted.'
 
That suggests a fourth challenge, which is how to construct the most transparent and democratic vehicles for workers to administer the funds. Ideally, these funds could serve as a model for collective decision making. They might even include space for community voices beyond the impacted workforce or even to create new jobs for unemployed and underemployed workers. The funds might create a way to essentially “bargain for the public good.”13 The question of how to construct forums for this is still to be answered by those testing the strategy.
 
Despite all of these potential obstacles, it is hard not to see the shining opportunity this strategy presents. Not only does it build on the recent movements to challenge the unprecedented power of Wall Street and corporate owners over our economy, it also redefines the theater in which workers are able to “bargain”—expanding it to include state interventions in addition to direct agreements between employers and employees. The increasingly aggressive attacks on traditional Wagner Act bargaining in the United States in the last half century make the low-wage employer fee strategy and others like it not just clever policy ideas but also necessary experiments to build real worker power—organized people with organized resources—to reset the economy in a way that works for all of us.
 
To be clear, the most important solution for solving inequality under this chronically ailing global economy is not an increase to the minimum wage. It is collective bargaining. However, relying solely on laws created in 1947 to guarantee collective bargaining for workers operating in today’s precarious economy is inefficient—even negligent. The theater of bargaining needs to be expanded to include more non-traditional forms of worker organization. Strategies like the low-wage employer fee help us redefine bargaining—who bargains with whom and for what.
 
Notes
 
1. Ken Jacobs, Ian Perry, and Jenifer Macgillvary, The High Public Cost of Low Wages (Berkeley: Berkeley Labor Center, University of California, 2015).
 
2. United States Congress, House Democratic Staff of the Committee on Education and the Workforce, U.S. House of Representatives. George Miller, Everyday Low Wages: The Hidden Price We All Pay for WalMart, 108th Cong., 2nd sess. H. Rept. N.p.: n.p.
 
3. Jacobs, Perry, and Macgillvary, The High Public Cost of Low Wages.
 
4. “Largest Employers,” Hartford Courant, July 2006, available at www.courant.com/mhc-market-employers-htmlstory.html.
 
5. Daniel Kennedy, Stan McMillen, and Louise Simmons, “The Economic and Fiscal Impact of Low-Wage Work in Connecticut,” issue brief funded by the Jobs with Justice Education Fund, April 2015. Available at http://cahs.org/wp-content/uploads/2015/04/issueBriefCT6.pdf
 
6. Kennedy, McMillen, and Simmons, “The Economic and Fiscal Impact of Low-Wage Work in Connecticut.
 
7. Christopher Keating, “Comptroller: State Deficit Increases to Nearly US$173 Million,” Hartford Courant, April 1, 2015, available at www.courant.com/politics/capitol-watch/hccomptroller-state-deficit-incre... 173-million-20150401-story.html#page=1.
 
8. Mark Watts, “Strong Support and Clear Direction for Low Wage Employer Fee in Connecticut,” Abacus Associates, March 9, 2015.
 
9. “Aetna Announces Changes That Will Improve Wages and Medical Benefits for Thousands of Its Employees,” Aetna: Health Section, January 12, 2015, available at https://news.aetna.com/ news-releases/fact-sheet-aetna-announceschanges-will-improve-wages-medical-benefitsthousands-employees.
 
10. John Ydstie, “Health Insurer Aetna Raises Wages for Lowest-Paid Workers to US$16 an Hour,” NPR.org, April 30, 2015.
 
11. International Franchise Association, Inc. et al. v. City of Seattle, 92 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE, March 17, 2015.
 
12. “NLRB Office of the General Counsel Issues Consolidated Complaints against McDonald’s Franchisees and Their Franchisor McDonald’s, USA, LLC as Joint Employers,” National Labor Relations Board, December 19, 2014, available at www.nlrb.gov/news-outreach/news-story/nlrboffice-general-counsel-issues-....
 
13. See the Bargaining for the Common Good website, available at www.bargainingforthecommongood.org.
 
Author Biography
 
Erica Smiley is the Director of Campaigns for Jobs with Justice. She sits on the board of the Highlander Research and Education Center, and previously held the position of senior field organizer for the Southern Region at Jobs with Justice.
 
October 26, 2015