Catherine Cool Rumsey: Using the Power of the Public Purse

Workers with more money in their pockets need less public assistance.

Senator Catherine Cool Rumsey

Last week, Walmart CEO, Doug McMillon told Business Insider that he’s an “associate,” just like the retail workers in Walmart stores. Mr. McMillon, however, makes nearly $10 million a year, while 30,000 of his “associates” make the minimum wage.

Many people recognize that the wide – and widening – wage gap in the United States is a detrimental economic trend that harms the vast majority of Americans. But as a country that has long revered the entrepreneurial spirit and the notion that those who build a successful enterprise deserve to reap its rewards, perhaps some feel there is little we can do to prevent wealth concentration among those at the top of private industry.

One element that contributes to the concentration of wealth in this country is the inordinately high compensation packages that many companies pay their executives. While the success of those firms often relies on paying disproportionately lower wages to the masses who create, sell or otherwise promote the corporation’s products or services, those at the top can pull down tens of millions in a single year, hundreds of times the salary of the vast majority of their employees.

According to a 2013 Economic Policy Institute study of the top 350 U.S. firms, CEO pay grew more than 876 percent between 1978 and 2011, more than twice the growth of the stock market and significantly faster than the growth of typical private sector workers. The ratio of CEO pay to average worker pay widened accordingly. In 1978 it was 29-to-1, by 1995, it had grown to 122-to-1, and it peaked at an astonishing 383-to-1 in 2000.

Low wages are not just a business matter. This extreme wage inequality often comes at a cost to the taxpayer, too. Many workers at the bottom of the pay scale are forced to rely on numerous social services – food assistance, subsidized child-care, rent and energy assistance, health care and more – to make ends meet, despite being employed full-time.

To put the taxpayer cost into perspective, a recent report estimates that low-wage earners at a single Wal-Mart Supercenter in Wisconsin cost taxpayers $900,000 to $1.75 million in public assistance provided to their employees per year. The question we as taxpayers need to ask ourselves is “Why should our tax dollars subsidize economic inequality?”

I have proposed one course of action in the form of legislation (2014-S 2796) that would give preference in state contracts to companies whose executives are paid salaries that do not exceed 32 times the salary of their lowest-paid full-time employee. As an example, for a company to have a preference in contracting with our state, if the CEO made $1.6 million, its lowest earners would need to make at least $50,000.

This legislation doesn’t stop companies from paying their CEOs whatever salary they want, nor does it even prevent those companies from bidding on and winning state contracts.  It simply gives a preference to companies that do their part in reducing their employees’ need for taxpayer subsidies. I believe it would also lead to more efficient and effective pricing and services from companies that are truly interested in serving the public interest instead of soaking the taxpayers.

Fairer wage ratios and bringing up wages of those struggling at the bottom will also return to the middle class some of the buying power it had in the middle of the 20th century – a plus for those very companies that have products to sell to them.

Our state speaks with our money; saying we would prefer, when possible, to do business with companies that are not contributing to the proliferation of economic inequality is the right way to use taxpayer money.

The hidden cost to the taxpayer as a result of wage inequality has been growing for decades; it will take many actions to change course. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, which instituted a new level of transparency on executive pay. The Rhode Island Senate bill S2796 implements a simple preference to help promote income security and economic justice for all Rhode Islanders.

Sen. Catherine Cool Rumsey is a Democrat who represents District 34 in Exeter, Charlestown, Richmond, Hopkinton and West Greenwich. Her bill (2014-S 2796) passed the Senate on June 5 and will now go to the House of Representatives.

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