Sanders has right goal, wrong target in fight to help low-wage workers

Senate Budget Committee Chairman Bernie Sanders (I-Vt.) is set to gavel a hearing to order this week to ask a pointed question: “Why should taxpayers subsidize poverty wages at large profitable corporations?” It is a reference to the fact that many low-wage workers in America qualify for public benefits — and thousands of them are indeed employees of large corporations.

But while Sen. Sanders is absolutely right to focus on the challenge of raising wages for America’s lowest-paid workers, holding the spotlight on large corporations risks missing the bigger picture: Many more of the low-wage workers who receive government benefits are in small companies than in large ones. The Urban Institute found in 2007 that while 20 percent of all workers were employed in firms with fewer than 10 workers, these firms employed 42 percent of low-wage workers.

As my colleague Michael Lind and I wrote in our book “Big Is Beautiful: Debunking the Myth of Small Business” on average, large corporations pay their workers better than small businesses do. This is true across industries, including in lower-wage sectors like retail, where big companies like Walmart and Amazon pay more than small companies. One study found that “working in a store with 500+ employees pays 26 percent more for high-school educated and 36 percent more for those with some college education… relative to working in a store with less than 10 employees.” The study also found that large firms give bigger pay increases to their workers: “Staying an additional year in a large firm brings an estimated average of 3.4 percent increase in salary in large firms but only 2.6 percent in small firms.”

Big firms also provide better benefits. Workers in big companies receive an average of 85 percent more supplemental pay (e.g., overtime and bonuses), 2.5 times more paid leave and insurance, and 3.9 times more in retirement benefits than workers in businesses with fewer than 100 workers. This may be why the share of workers who voluntarily quit a job at a large establishment (one with more than 5,000 employees) is about 40 percent the rate at small establishments. Meanwhile, large firms also have better records than small firms on a host of other societal indicators, from workforce diversity and unionization rates to compliance with environmental regulations.

Big companies are an easy target, in part because people assume they must be more profitable than small businesses and hence must be raking in cash on the backs of their workers. In fact, according to IRS data, corporations with receipts of less than $500,000 in 2013 enjoyed net income of 7.1 percent as a share of receipts, while the largest corporations had a net income of 6.8 percent.

So, while singling out big firms might seem to be effective politically, it points the way to suboptimal policy. If the goal is to improve the working conditions and benefits of lower-wage workers, then instead of targeting the big firms that actually treat their employees better than small firms, Chairman Sanders would be best advised to focus on pursuing his goal of a $15 minimum wage.

Requiring all businesses, regardless of size, to pay a higher minimum wage would have two salutary effects. First, it would boost productivity, as more employers realize they can no longer compete on the basis of low wages, but instead will have to invest in training their workers and upgrading their technology. Second, it would help level the playing field, so small firms have a harder time taking the “the low road” to compete against large companies that pay their workers better.   

However counterintuitive it may be, the best way to champion the interests of low-wage workers is to abandon the fight against big companies and pass a higher federal minimum wage that applies to all employers, big and small.

Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation (ITIF), a leading think tank for science and technology policy.