Alternate Approaches

For a ‘Living Wage’ America, Cap the Top

The White House wants to require firms that do business with the government to pay decent wages. That could work — if we go after all pay that’s indecent.

By Sam Pizzigati

Labels can often cloud reality. Take the labels of “private” and “public” sector. We employ these labels all the time, to divide our economy into totally separate compartments, as if the “private” and “public” sectors represented two entirely different economic universes.

In reality, private and public sectors overlap and interlace, profoundly and incessantly. How connected have the two sectors become? A quarter of Americans work for firms that have contracts with the federal government.

Huge numbers of other Americans work for companies with contracts from state and local governments. Still more private enterprises regularly pocket public tax dollars, by the billions, for economic development grants and subsidies.

Without all these tax dollars, the U.S. economy would grind to a halt. And that reality, savvy policy makers have always understood, creates some interesting opportunities. By leveraging the power of the public purse — by denying, for instance, tax dollars to companies that behave poorly — governments can encourage business behavior that helps us build a better society.

Back in the 1960s, during the civil rights movement, activists acted on that reality. They pressed President John Kennedy to require federal contractors to put in place nondiscriminatory employment practices, and he did.

In the mid 1990s, in Baltimore, economic justice activists set off on a similar course. Tax dollars, they argued, should not go to companies that pay poverty wages. The city eventually agreed. In quick order, activists in localities across the United States had won what became known as “living wage” ordinances.

To win a local government contract, these living wage ordinances stipulated, businesses had to pay wages high enough to keep their workers out of poverty.

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With Barack Obama’s election, a “living wage” approach to procurement at the federal level has suddenly became politically possible. The Obama White House, news reports are now noting, is actively crafting plans that would “give an edge” in the federal contract bidding process “to companies that offer better levels of pay, health coverage, pensions, and other benefits.”

National corporate lobbies and their lawmaker allies are, predictably enough, already denouncing these emerging plans. They have what they consider a politically potent argument. Requiring contractors to meet higher wage standards, as Senator Susan Collins from Maine contended recently, “could have serious, negative consequences, especially for our nation’s small businesses.”

Small businesses, lobbyists for big business are so selflessly arguing, wouldn’t be able to compete for contracts if they had to pay workers more.

That argument mangles the facts. Many small businesses do pay decent wages, and the nation’s largest low-wage employer happens to be a corporate colossus, Wal-Mart. Still, by playing the “small business card,” corporate interests do have an argument that can resonate powerfully in the media echo chamber.

What can economic justice activists do to blunt this cynical corporate ploy? They can begin insisting on a government procurement bidding process that addresses the top of the corporate pay ladder, not just the bottom.

Such a process could set out a maximum gap between corporate top and bottom and deny government contracts to companies that pay their top executives over that maximum. A reasonable maximum for executive pay could, for instance, be set at 25 times what a firm’s lowest-paid workers are receiving.

A generation ago, in the United States, few firms paid their top executives over 25 times their worker pay. Big-time firms today, at last tally, pay their top execs 319 times more than what average American workers receive.

By insisting that companies going after government contracts keep pay at the top within hailing distance of pay at the bottom, the federal government would be unleashing several different marketplace dynamics — all of them positive.

A pay ratio limit, for starters, would give small businesses a better shot at gaining contracts, since pay gaps within small enterprises seldom ever come close to the gaps at America’s corporate giants. A pay ratio cap would also give large enterprises an incentive to raise the wages that go to their lowest-paid workers. The higher these wages at the bottom, the higher the allowable pay at the top.

signupEven more importantly, governmental procurement policies that privileged companies with narrow pay gaps between top and bottom would encourage enterprise-wide innovation and efficiency throughout the American economy.

“Effective enterprises,” researchers have shown, share rewards. “Defective” enterprises ladle rewards at the top. Peter Drucker, the father of modern management science, believed that corporations should compensate their top executives at no more than 20 or 25 times what their workers receive.

Congress now actually has legislation pending that leans in this direction. Rep. Janet Schakowsky’s Patriot Corporations Act would give a federal contract bidding preference to firms that pay their executives less than 100 times their workers.

An earlier bill along that line, in the last Congress, had the support of a young senator from Illinois. That senator: Barack Obama.

Sam Pizzigati edits Too Much, the online newsletter on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Too Much appears weekly. Read the current issue or sign up to receive Too Much in your inbox.

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