Companies Can Afford to Pay Workers More

August 7, 2018

Why This Matters is a series from Roosevelt staff connecting our individual work—from papers to reports and everything in between—to our broader vision of creating a better, more equitable economic and political system. This series will give readers the top takeaways from our latest writing and thinking, with a focus on why they matter as we redefine the rules that guide our social and economic realities.

The unemployment rate is approaching an 18-year low of 3.8 percent—which would be great news if other key economic indicators, such as wage growth, were keeping pace. Racial disparities, for instance, are persistent, including an unemployment rate for Black Americans at 6.6 percent. With student loan borrowers holding $1.5 trillion in debt, opportunities for economic mobility (like buying a home or starting a new business) are increasingly out of reach for most. And with nearly 80 percent of workers in the U.S. living paycheck to paycheck, the economically privileged are taking more and more of the economic pie.

As individuals and households struggle to make ends meet, corporate America often contends that it can’t afford to pay workers better. In a joint report from the Roosevelt Institute and the National Employment Law Project (NELP), Roosevelt Program Director Katy Milani and NELP Senior Researcher Irene Tung challenge this narrative by exposing the magnitude of corporate spending on stock buybacks across three important U.S. industries. The report’s findings show that, from 2015 to 2017, corporations spent almost 60 percent of net profits on buybacks. The restaurant industry—keeping in mind that 40 percent of fast food workers live in poverty—spent more on stock buybacks than it made in net profits, which means that it funded its buybacks programs through debt and cash reserves, not earnings. If McDonald’s alone redirected the money it spends on buybacks to worker compensation, the company could pay all of its 1.9 million workers worldwide almost $4,000 more a year.

Companies today are funneling funds up and out of firms to enrich corporate executives and speculative shareholders rather than using their ample corporate resources to invest in workers’ wages, business expansion, and other kinds of long-term, shared economic growth. Payouts to shareholders, including stock buybacks, are driving today’s wealth divide and hurting American workers, families, and communities. While it’s absolutely crucial that we structurally reduce corporate power, Milani and Tung’s report provides the evidence needed to reject the notion that many companies can’t afford to pay workers more.