Dean Barber

Waiting for the Rising Tide

In Economic Development on December 8, 2013 at 5:56 am

About five years ago, I was visiting a small, rather isolated town in the Deep South, and was somewhat surprised to learn that one of their primary goals was to land a fast food restaurant.

Never mind that such an enterprise would be paying close to minimum wage. This was something that was desired because it would generate at least a modicum of commerce (and sales tax) in a community that was pretty dead.

A few years prior to that, I remember being in a major city in the Deep South that was providing property tax abatements to fast food franchises that would build and open at new locations. Leave it to say, I thought that was a rather curious move.

As a former economic developer and now a consultant focusing on corporate site selection and ED work, I hearken to a quote from President John F. Kennedy.

“No American is ever made better off by pulling a fellow American down, and every American is made better off whenever any one of us is made better off. A rising tide raises all boats.”

To me, that notion of a rising tide raising all boats is the perfect metaphor for economic development. And yet so often, I find that economic developers will stress the lower-wage aspect of their communities. But is that really your best measure for how you want to compete for capital investment?

The Good and the Bad

Make no mistake about it, the U.S. job market is improving. We added 203,000 jobs in November, and the unemployment rate fell to a five year low. That’s the good news. But I would be remiss if I did not tell you the bad news, which has been the real mega-trend. And that is that much of America’s middle-class jobs have been replaced by low-wage jobs coming out of this Great Recession.

Economists have been debating why this is so. Some argue that technological innovations are making easily automated jobs less common. These jobs tend to be low to medium-skill, high-paying occupations, such as working on a factory assembly line.  (I have been speaking on this subject for some time now in a presentation that I call “Machines Rising.”)

The result has been growth in occupations that are hard to automate — either menial and low-paying or high-skilled and high-paying. It is the middle then that gets hollowed out, while both the low and top ends grow.

Mid-wage occupations, paying between $13.83 and $21.13 per hour, made up about 60 percent of the job losses during the recession, but only 27 percent of the jobs gained during the recovery. By contrast, low-wage occupations paying less than $13.83 per hour have dominated the recovery, with 58 percent of the job gains since 2010.

A Resurgent Labor Movement?

With this backdrop in mind, it is not surprising that we are seeing a resurgent labor movement, maybe still in its infancy, for a living wage for America’s fast-food and retail workers, who are fed up with poverty wages and lack of basic benefits.

Currently, the average line worker in a fast-food restaurant makes $8.94 an hour, which is more than the federal minimum wage of $7.25 an hour, but not enough to live on, especially given that few of these workers are able to get full-time hours.

On average, workers claim, a fast food employee brings home $10,000 a year, well below the poverty threshold of $11,484. About 26 percent of the people who work in fast food restaurants are parents with children. So they are not the stereotypical high school students flipping burgers any more.

Bloomberg did an interesting story last year in which it reported that a long-time worker at a McDonald’s in Chicago would need about a million hours of work — or more than a century on the clock — to earn the $8.75 million that the company CEO had made in a single year.

So if you are an economic developer, hoping to help your existing industry base expand or recruit new companies to your community, why should this issue of the working poor be a concern to you?

Aside from the moral argument, there is some evidence that a low minimum wage depresses salaries overall and actually makes a local economy more sluggish. What’s more, low-wage fast food workers are far more likely to need help from government programs like food stamps and subsidized housing.

Low wages at the nation’s 10 largest fast-food companies cost taxpayers $3.8 billion per year, because workers have to rely on government assistance to get by, according to a recent study by the National Employment Law Project.

The Walmart Effect

Now let’s talk about Walmart. I shop at Walmart. Please know that I do not hate Walmart, but neither do I see the company as a panacea for prosperity. But I have known of communities that have bent over backwards to get a Walmart.

Walmart’s 2.1 million workers make it the world’s largest private employer, with 1.4 million workers in the U.S. alone, more than the population of Maine. Walmart bested Exxon Mobil as the company with the greatest revenues last year at $443.9 billion worldwide, more than the GDP of Austria. 

But does this a goliath of a company necessarily have a beneficial effect on a community? Or is it like a bombshell going off?

A 2008 study published in the Journal of Economics looked at 3,000 Walmart store openings nationally. The study found, on average, that a store opening resulted in a county-level net decline of 150 jobs, as it forced other businesses to downsize or shutter.

The average Walmart associate earns $8.87 an hour, according to the employment survey site Glassdoor, while the average hourly wage for a retail sales worker in the U.S. in 2010 was $10.09, reports the Bureau of Labor Statistics.

Like their counterparts in the fast food industry, many Walmart workers receive government assistance, like Medicaid and food stamps. A May report from the staff of congressional Democrats found that a single 300-person Walmart store in Wisconsin likely costs taxpayers more than $900,000 a year, or more than $3,000 per employee, and could cost up to $1.7 million a year. Last month, Walmart drew criticism when one of its Ohio stores set up a Thanksgiving food drive for its own workers. 

Clearly, no politician wants to ever utter the “R” word — “redistribution” as it conjures up images of worthy “makers” handing over hard-earned income to undeserving “takers.” Never mind that as low-wage work proliferates, these so-called takers are working as hard if not harder than anyone else.

This is a tough, tough issue and the solutions are far more difficult than the identifying of the problem. But I submit this growing divide that we are seeing among the haves and have nots in this country (The amount of income going to the top 10 percent is the highest in about 100 years and the top 1 percent of U.S. earners collected nearly 20 percent of household income last year.) can pose a threat not only to future economic growth but to our foundational democratic institutions as well.

Pretty serious stuff.

The Pope is No Dope

I’m not a Catholic, but I like this new pope. Pope Francis appears to be quite comfortable in his own skin by saying things that make other people rather uncomfortable.

“Just as the commandment ‘Thou shalt not kill’ sets a clear limit in order to safeguard the value of human life, today we also have to say ‘thou shalt not’ to an economy of exclusion and inequality. Such an economy kills,” the 76-year-old pontiff recently wrote.

I don’t think the pope is condemning wealth per se. Rather, I do think he is condemning the idolatry of wealth and the indifference that it can lead toward the plight of the poor.

“In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world,” Pope Francis wrote.

“This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.”

You have got to hand it to him, the man is not shy about calling it like he sees it.

Win Some, Lose Some

Finally, we are going to end this blog on a different note because of what I wrote in my last blog and breaking news. In my last blog, I talked about how announced projects can take a nosedive. It happened again this past week in Louisiana.

Royal Dutch Shell has abandoned plans to build a massive $12.5 billion plant in Ascension Parish, near Baton Rouge. The decision comes just two months after Shell selected a site for the plant, which would have would have turned natural gas into liquid fuels and created 740 jobs..

The company said the cost of the plant and the expected profit it could generate made the plant “not a viable option.” Now you would have thought they would have known that back in September when they announced the project to great fanfare.

This is further proof that even some of the biggest companies don’t always think things through, and that the best laid plans of mice and men often go awry.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

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  1. Good morning to you Dean. I hope that you are enjoying the holiday season. All is well here but no “significant rising tide” on this end of the world as yet. I think most of the current job increases are the lower pay, retail jobs and temporary jobs at that. We seem to be ready to jump on any panacea of “good news”- no connection to the second line in the news story that says the job numbers have not been that high since last November- gee I wonder what the connection good be?

    We are likely to move forward with a spec building in the near future- about 40,000 sq. ft. I am not convinced it is the best thing to do but it is the only proactive thing I know to do at this point. I am still making my marketing trips to CA. The attempt to go to Ilinois did not make- not enough interest to warrant the trip.

    If I do not talk with you prior to Christmas, I hope that you have a very good holiday season and a Happy and prosperous new year.

    Charlie

    Sent from my iPad

  2. Dean

    Very interesting article. Probably the best argument for conservatives to raise the minimum wage. If the federal government is subsidizing labor at Walmart to the tune of a million dollars a year per store and you extend that over all segments and industries the savings in the federal budget would be significant. It’s worth exploring.

  3. Thanks Dean for another well written article. You are right on with this article .I also want to wish you and yours a very Merry Christmas and Happy and prosperous New Year.

  4. Reblogged this on BioNOLA Business Blog and commented:
    An important discussion by a seasoned economic developer. Communities should be investing in workforce development to attract employers who will support the middle class again.

  5. Great article Dean! Hope you are well. I think this sort of behaviour will not stop until people realise that essentially society subsidizes the wealthy in any economy when wages for the masses are too low to live off of and the fixes are more affordable, quality education for all and a minimum wage people can get by on. This is a policy problem that started with Reagan and hasn’t stopped only slowed at times. Obama has tried, but with great resistance from those corporations benefitting from what equates to corporate subsidies. I hope it can change.

  6. Dean,
    Economics 101. Henry Ford economics. Call it what you will: if you pay living wages to people, they can support themselves and their families without subsidies AND they have the disposable income to purchase other goods and services which keeps supply and demand in balnce AND people employed making goods and providing services AND companies making profit. Our economy cannot be supported by the top 1% alone. I continue to be stunned at the short-sightedness of companies that operate these “yeah for today, the hell with tomorrow” models. Either they do not understand the implications of what they are doing or they do and they don’t care. In the meantime, the race to the bottom continues and we will all pay the price. Raise the cost of a hamburger a quarter, charge me $1.00 more for a package of t-shirts and increase the cost of my ice cream a dime. But please pay people a living wage! It is not redistribution! It is common sense and good business.

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