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Paying for Your Wages

On successive days earlier this summer The New York Times exposed the continued plight of working class people in an employment culture that continues to handsomely reward those at the very top while those who struggle to make ends meet are relentlessly squeezed.  The first article described a new trend in how workers receive their wages.  A growing number of workers have had paychecks and direct deposit replaced by pre-paid cards issued by their employers.  These cards work like debit cards at ATM machines.  Employers cite lower costs and convenience as the motivation. 

In fact, the use of the cards saves employers money and can cost employees a significant chunk of their already suppressed wages.  Using the card in an ATM generally involves a fee.  For employees earning very low wages, the fees involved can reduce the real take home pay below the minimum wage.  One McDonald’s employee in Milwaukee spends up to $40 a month in fees on a $7.25 an hour salary.  Large retailers and restaurant chains like Taco Bell, Walmart, and Walgreens use the prepaid cards and the trend is growing.  In 2012 $34 billion was loaded onto 4.6 million payroll cards; by 2017 that number is expected to balloon to $68.9 billion on 10.8 million cards.

While employees experience the bite in their earnings, not surprisingly employers and the banks that issue the cards and reap the fees are delighted.  Citigroup estimates that a company with 500 workers can save $21,000 a year by switching to prepaid cards.  So lucrative is the practice that some banks are offering incentives to employers who sign up workers.  Citibank pays the New York City Housing Authority a dollar for each employee it signs up.  What makes these prepaid cards even more attractive to banks is the lack of regulation; Dodd-Frank doesn’t cover them.  One employee of a Taco Bell in St. Louis got so tired of being charged $1.75 in addition to ATM fees every time she withdrew cash that she now withdraws all her wages once a month and keeps it stashed in a shoe box in her closet!

Meanwhile, The Times reported the next day that life at the top end of the pay scale is a bit happier.  A survey of 200 chief executives at public companies with at least $1 billion in revenue saw their compensation increase by 16 percent this year, an increase in median compensation to $15.4 million per executive.  If you think this reflects salary growth lower in the food chain, think again.  The CEO of Caterpillar is a case in point.

Douglas Oberhelman saw his total compensation rise by 20 percent this year to $17.7 million.  Caterpillar revenue increased by 10 percent, while net income increased 15 percent.  In other words, Oberhelmen is being rewarded for increasing company income by increasing “productivity.”  Translate this to mean salary freezes, the institution of tiered salary systems, strike breaking tactics, and layoffs in places like Joliet and in South Milwaukee where, last month, Caterpillar idled a third of its labor force.  Two hundred and sixty workers are affected.  Oberhelmen presided over CAT during the fifteen week strike in Joliet, Illinois.  That bitter strike ended in major concessions by the union including a six year wage freeze, a pension freeze for two thirds of the workers, and a steep increase in employee contributions for health care insurance.  Meanwhile, a Chicago Tribune article this spring reported on the deterioration of labor-management relations at the Milwaukee plant since it was purchased two years ago by Caterpillar.  The most recent contract also included major concessions, among them the institution of a tiered wage scale which allows Caterpillar to pay new hires at rates well below more senior union members. 

The new contract language may be irrelevant for the 260 laid off workers.  And it doesn’t help a quarter of its workforce that is comprised of temporary workers hired through staffing agencies, allowing CAT to circumvent union contract commitments.  But it is certainly relevant for Mr. Oberhelmen who is profiting handsomely at the expense of his workers. 

Compensation in the form of a prepaid card requiring fees to access and compensation in the form of multi-million dollar salaries, bonuses, and stock options give a pretty good glimpse of where the economy is moving these days.  It’s bad enough that we reward CEO’s who drive productivity by freezing wages, laying off workers, and coercing long term suppression of salaries through tiered pay scales.  That we force even the lowest paid workers in our economy to pay for the privilege of getting their wages is truly unconscionable.

John H. Thomas
July 18, 2013

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