Portside Labor



Gregory N. Heires
May 22, 2013
The New Crossroads
The public policy think tank Demos has issued a report documenting how the federal government is using taxpayer money to subsidize low paid wage workers. This has allowed corporations to pay low wages to the detriment of the workforce.

The U.S. government underwrites more low-wage workers than Wal-Mart and McDonald’s employ together.

Federal tax dollars fund nearly 2 million workers who earn $12 an hour or less, roughly the poverty level for a family of four. That’s about ½ million more low-wage workers than Wal-Mart and McDonald’s employ.

In a new report, “Undermining Bad Jobs: How Our Tax Dollars are Funding Low-Wage Jobs and Fueling Inequality,” the public policy think tank Demos tracks how the federal government has joined corporations in contributing to the declining standard of living of Americans.

This disturbing trend occurs as the government privatizes services and hires private companies for projects. The growing support of low-wage employment with U.S. tax dollars amounts to an abandonment of government’s historic commitment to providing minorities and women with a pathway to the middle class and paying its employees decent, albeit modest, wages with good benefits.

Billions of tax dollars go to companies that pay low wages

“Through federal contracts and other funding, our tax dollars are fueling the low-wage economy and exacerbating inequality,” the authors of the report, Amy Traub and Robert Hiltonsmith, write. “Hundreds of billions of dollars in federal contracts, grants, loans, concession agreements and property leases go to private companies that pay low wages, provide few benefits, and offer employees little opportunity to work their way into the middle class. At the same time, many of these companies are providing their executives with exorbitant compensation.”

The jobs are funded through direct contracts and Small Business Administration loans, as well as through the contracting out of Medicare and Medicaid services, infrastructure work, child health services, and public building services.

More than half the poorly paid workers are employed in the health-care sector. The 392,000 workers include nursing attendants, medical assistants, hospital orderlies and health aides, in home health care services and at least 785,000 others in hospitals, nursing homes and elder care.

Another 27,000 work in investigation and security services (security guards, support staff), 13,000 in food services (cooks, servers, front-line managers at restaurants and snack bars on public lands and at government agencies), 81,000 in construction (non-union laborers), 60,000 in retail (salespeople), 23,000 in building and housing services (janitors, security guards, landscaping laborers), 11,000 in apparel manufacturing (sewing machine operators, textile cutting machine setters, operators and tenders), 35,000 in transportation equipment and manufacturing (unskilled and assistant manufacturing workers) and 555,000 in other industries (day-care, administrative, warehouse, laundry, private prison and slaughterhouse workers).

Government underwriting of low-wage jobs is actually significantly higher than what the Demos report shows, according to the authors. For instance, the report did not examine subsidies for agribusiness, which employs a million low-wage farm workers. It also did not cover federal education assistance, which funds the jobs of teaching assistants and food services workers.

Weakening employment standards

“These are employees working on behalf of America, doing jobs that we have decided are worthy of public funding—yet they’re being treated in a very un-American way,” the reports says.

The authors point out that the government has traditionally aimed to uphold decent labor standards through executive orders and such laws as the 1931 Davis-Bacon Act, which requires federal contractors to pay prevailing wages. But as it has privatized federal work, the government has weakened those standards, according to the report.

Public-employee unions have long fought privatization, arguing that it encourages cronyism, amounts to union busting and destroys middle-class jobs. They have tried to discourage contracting out with “living wage” local laws that require contractors who receive taxpayer dollars to pay decent wages. In addition, they have adopted a “follow the work” strategy of organizing the workers of the contractors.

The Demos report found examples in which federal contractors fail to offer benefits, pay below average and don’t offer benefits. The authors cite a 2006 survey of eight apparel contractors that found many employees were actually paid far less than the industry median, earning just $6.55 an hour on average. Most of the workers surveyed had no health care coverage and reported labor and employment law violations, including forced overtime and hazardous work conditions.”

Fidelina Santana, 40, a worker quoted in the Demos report, said, “I have worked in the food court at the Ronald Reagan building for nine years. Even after so many years of hard work, I only earn $9.50 an hour and I don’t have any benefits.

“To make ends meet, I need to work 73 hours a week. I don’t even get overtime. I work so much because I am a single mother of three children. I need to feed them and put a roof over their heads, even if it’s only a bedroom that I rent in my sister’s house.”

Skyrocketing executive pay

As the front-line workers are paid wages so low that they face a daily struggle to put food on their tables, pay the rent and support their children, the executives of the federal contractors enjoy high compensation. It’s the usual story of our economy in which class differences are sharpening with inequality returning to the Great Depression era.

Federal law sets the maximum reimbursement of contractors at $763,029, but the cap does not limit executive pay. “The problem is that the maximum amount is pegged to the compensation levels of the nation’s highest-earning corporate executives,” the Demos report says. “As executive pay in the private sector has skyrocketed, so has the amount that the federal government will allow executives to be paid through our tax dollars.”

To improve the lot of low-wage workers, the report suggests that the White House issue executive orders to raise and enforce workplace standards. When appropriate, jobs should remain with the government. And state and local living wage laws offer a model for federal action, the report says.


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